BRARY 

VERSlPf  Of 


UNIVERSITY  OF  CALIFORNIA   SAN  DIEGO 


"R- 


3  1822  00446  7395 


THE 


FINANCIAL  HISTORY 


XJN'ITED   STATES, 


FROM    1789    TO    1860. 


BY 


ALBERT   Sf  BOLLES, 


PROFESSOU     OF     MERCANTILE     LAW     AND     PRACTICE     IN     THE     WHARTON     SCHOOL     OF 

FINANCE    AND    ECONOMY,    UNIVERSITY    OF    PENNSYLVANIA;    LECTURER    IN 

POLITICAL     ECONOMY     IN     TBTE     BOSTON     UNIVERSITY;      ANT) 

EDITOR    OP     "THE     BANKERS'    MAGAZINE." 


THIRD    KDITION. 


NEW   YORK: 
D.    APPLETON    AND    COMPANY, 

1,  3,  AND  5  Bond  Street. 
1891. 


PREFATORY  NOTE  TO  SECOND  EDITION. 


More  facts  have  been  added  to  the  chapters  on  Coinage  ;  the 

others  have  not  been  changed. 

6 


CONTEXTS. 

BOOK   FIRST. 

FROM  1780   TO   THE   WAR   OF  1812. 

Page 
CHAPTER  I. 

FOKMATION  OF  THE   TreASUKY  DEPARTMENT  ....  3 

CHAPTER  II. 
How  THE  Accounts  and  Deposits  avere  kept  ....      14 

CHAPTER  III. 

The  Funding  of  the  Revolutionary  Debt     ....      22 

CHAPTER  IV. 
Payment  of  the  Revolutionary  Debt 42 

CHAPTER  V. 
Taxation  of  Imports 73 

CHAPTER  VI. 
Internal  Revenue 103 

CHAPTER  VII. 
The  First  United-States  Bank 127 

CHAPTER  VIII. 
Coinage 156 

CHAPTER  IX. 

Hamilton's  Administration  ........    175 

7 


8  CONTENTS. 

Page 
CHAPTER  X. 

Appropriation  Bills,  how  formed  and  construed        .        .    182 

CHAPTER  XI. 

Appropriations  and  Expenditures,  1789-1800  .        .       .       .191 

CHAPTER  XII 
Appropriations  and  Expenditures,  1800-1812  ....    203 

BOOK  SECOND. 

FEOM  THE  OPENING   OF  THE   WAR   OF  1812   TO  ITS 
CLOSE  IN  1815. 

CHAPTER  I. 
War-Loans 219 

CHAPTER  II, 
Taxation 242 

CHAPTER  III. 
The  Government,  and  the  Circulating  Medium   .       .       .    261 

CHAPTER  IV. 
Effect  of  the  War  on  Manufactures 284 

CHAPTER  V. 

Administration    of    the    Treasury,    from    Gallatin    to 

Crawford 294 

BOOK  THIRD. 
FROM  THE  CLOSE  OF  THE   WAR  IN  1815,    TO  1860. 

CHAPTER  I. 
Payment  of  the  Funded  Debt 303 

CHAPTER  II. 
The  Second  United-States  Bank,  and  the  Public  Deposits    317 


CONTENTS.  9 

CHAPTER  III. 
Tariff  Legislation,  1816-1824 359 

CHAPTER  IV. 
Tariff  Legislation,  1824-1832 375 

CHAPTER  V. 
Tariff  Legislation,  1832-1842 413 

CHAPTER  VI. 
Tariff  Legislation,  1842-1846 434 

CHAPTER  VII. 
Tariff  Legislation,  1846-1860 449 

CHAPTER  VIIL 
The  Tonnage  Revenues 467 

CHAPTER  IX. 
Wakehousing  and  Drawbacks 478 

CHAPTER  X. 
Collection  of  Duties 486 

CHAPTER  XL 
Coinage 502 

CHAPTER  XII. 
Appropriations  and  Expenditures,  1815-1828  ....    518 

CHAPTER  XIII. 
Appropriations  and  Expenditures,  1828-1840  ....    538 

CHAPTER  XIV. 
Accounting ^^"^ 

CHAPTER  XV. 
Appropriations  and  Expenditures,  1840-1860  ....    576 


BOOK  I. 

FROM  1789,  TO  THE  WAR  OF  1812. 


FINANCIAL  HISTORY 


THE    UNITED    STATES. 


CHAPTER  I. 

FORMATION  OF  THE  TREASURY  DEPARTMENT. 

The  independence  of  the  American  Republic  had  been 
acknowledged  by  the  nations  of  the  earth.  From  neces- 
sity a  written  constitution  had  been  adopted.  These  were 
great  achievements  truly,  and  well  might  the  people 
believe  in  their  capacity  to  deal  successfully  with  any 
future  political  problem.  But  to  organize  and  maintain 
the  government  was  an  undertaking  scarcely  less  perilous 
than  the  great  feats  which  they  had  just  performed.  By 
a  seven-years'  war  the  people  had  won  independence ;  six 
years  of  agitation  had  brought  forth  an  admirable  consti- 
tution ;  but  a  hundred  anxious  years  were  to  pass  before 
national  security  was  established. 

The  first  Congress  convened  in  New  York.  Without 
delay  the  members  engaged  in  the  work  of  creating  the 
state,  war,  and  treasury  departments.  A  discussion  was 
kindled  over  Gerry's  suggestion,  that  the  latter  depart- 
ment be   placed  under   the  control  of  a  board  of  com- 

3 


4  FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1789. 

missioners.  Gerry  was  afraid  to  intrust  so  much  power 
to  one  individual.  But  only  a  few  members  agreed  with 
him.  Most  of  them  contrasted  the  administration  of 
financial  boards  under  the  old  government  with  the 
administration  of  Morris,  to  the  obvious  disadvantage 
of  the  former.  Gerry  himself  had  served  as  a  member  of 
one  of  those  boards :  he  knew  how  inefficient  they  were, 
and  had  often  spoken  frankly  about  the  way  they  man- 
aged the  public  business.  The  debate,  though  lasting 
several  days,  was  very  one-sided ;  and  Congress  wisely 
determined  to  appoint  one  person  who  alone  should  be 
responsible  for  administering  the  finances,  and  who  should 
singly  reap  the  glory,  or  incur  the  displeasure  and  shame, 
attending  his  official  action. 

Another  question,  of  less  importance,  though  worth 
notice,  was  raised  over  that  portion  of  the  committee's 
report  establishing  the  treasury  department,  which  re- 
quu-ed  the  secretary  "  to  digest  and  report  plans  for  the 
improvement  and  management  of  the  revenue,  and  the 
support  of  the  public  credit."  There  was  no  hesitation 
in  requiring  him  to  prepare  estimates  of  the  public  re- 
ceipts and  expenditures ;  but  to  go  farther  was  regarded 
by  many  as  a  dangerous  exercise  of  power.  It  was  feared 
that  members  might  be  led,  by  the  deference  often  paid 
to  one  who  makes  a  special  study  of  a  subject,  to  sup- 
port the  plans  of  the  secretary  even  against  their  own 
judgment.  Perhaps  the  mischief  would  not  stop  here :  it 
might  spread  until  all  the  ministers  were  admitted  on  the 
floor  to  explain  their  plans,  thus  laying  the  foundation 
for  an  aristocracy  or  a  detestable  monarchy.  Although 
these  sentiments  were  not  shared  by  all   the  members 


1789.]       FORMATION  OF  THE  TREASURY  DEPARTMENT.  5 

of  the  House,  yet  the  report  was  so  modified,  that  the 
secretary  was  simply  required  "to  digest  and  prepare 
plans,"  thus  leaving  the  question  how  they  should  be 
reported  to  the  future  determination  of  Congress. 

When  the  secretary  had  prepared  his  first  report,  which 
contained  a  plan  for  supporting  the  public  credit,  he 
inquired  whether  Congress  would  receive  the  report 
orally,  or  in  writing.  Some  members  said  the  subject 
was  so  difficult,  that  a  written  report  could  be  more  per- 
fectly mastered :  others  contended  that  inquiries  would  be 
necessary,  and  that  the  secretary  ought  to  be  present  to 
answer  them.  It  was  resolved  to  receive  the  report  in 
writing,  and  the  precedent  thus  established  has  always 
been  followed ;  though  it  may  be  seriously  questioned, 
whether,  if  the  secretary  were  allowed  to  explain  his 
reports,  and  required  to  answer  questions  put  to  him 
orally  in  the  House  in  regard  to  them,  more  light  would 
not  be  cast  on  the  treasury  business,  and  greater  watch- 
fulness and  wisdom  be  displayed  in  conducting  it. 

The  Act  establishing  the  treasury  department  provided 
for  the  appointment  of  a  secretary  (who  was  to  be  the 
head  of  the  department),  and  also  for  an  assistant  to  the 
secretary  (who  was  to  be  appointed  by  the  secretary 
himself),  a  comptroller,  an  auditor,  a  treasurer,  and  a 
register. 

The  secretary  was  required  to  digest  and  prepare  plans 
for  the  improvement  and  management  of  the  revenue  and 
for  the  support  of  the  public  credit ;  to  prepare  and  re- 
port estimates  of  the  public  revenue  and  the  public  expen- 
ditures ;  to  superintend  the  collection  of  the  revenue ;  to 
decide  on  the  forms  of  keeping  and  stating  accounts,  and 


6  FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1789. 

making  returns,  and  to  grant,  under  prescribed  limitations, 
warrants  for  dramng  money  from  the  treasury,  and,  in 
relation  to  the  sale  of  the  public  lands,  to  do  whatever 
Congress  might  require  of  him ;  to  report  and  give  infor- 
mation to  either  branch  of  the  Legislature,  in  person  or  in 
writing,  respecting  all  matters  referred  to  him  by  either 
body,  or  which  should  appertain  to  his  office ;  and  also  to 
do  such  other  services  relating  to  the  finances  as  Congress 
should  direct. 

The  Act  also  prescribed  the  duties  of  the  comptroller, 
treasurer,  auditor,  and  register.  None  of  these  officers 
were  to  be  concerned,  either  directly  or  indirectly,  in 
commerce,  vessels,  public  lands,  or  other  public  property, 
or  purchase  or  dispose  of  any  public  securities  of  any 
State,  or  of  the  United  States,  or  reap  any  gain  for  trans- 
acting the  public  business.^  The  clerks  in  the  several 
departments  were  appointed  by  their  respective  chiefs.^ 

For  the  head  of  the  treasury  department,  Hamilton 
was  wisely  chosen.  Though  only  thirty-two  years  old, 
public  opinion  had  marked  him  for  the  place  and  the 
hour.  He  possessed  pre-eminent  genius  for  organization, 
for  creation.  Morris  had  long  before  discovered  these 
qualities  in  him.  The  position  was  indeed  an  arduous  one. 
The  old  board  of  the  treasury  had  not  done  any  thing 
toward  ascertaining  the  nature  and  amount  of  the  pub- 
lic debt ;  a  revenue  system  was  to  be  created ;  the  public 
indebtedness  was  to  be  ascertained,  and  provision  made 
for  its  payment,  beside  organizing  all  the  machinery  of 
the   treasury   department   for   collecting   and   disbursing 

i  Act,  Sept.  2,  1789,  1  Coug.,  first  session,  chap.  12. 
*  Act,  Sept.  11,  1789,  1  Cong.,  first  session,  chap.  13. 


1789.]        FORMATION  OF  THE  TREASURY  DEPARTMENT.         7 

the  public  revenues.^  How  he  fulfilled  the  duties  of  his 
position  "  the  whole  country  perceived  with  delight,  and 
the  world  saw  with  admiration.  He  smote  the  rock  of 
the  national  resources,  and  abundant  streams  gushed 
forth.  He  touched  the  dead  corpse  of  the  public  credit, 
and  it  sprung  upon  its  feet.  The  fabled  birth  of  Minerva 
from  the  brain  of  Jove  was  hardly  more  sudden  or  more 
perfect  than  the  financial  system  of  the  United  States  as  it 
burst  forth  from  the  conception  of  Alexander  Hamilton."  ^ 

John  Eveleigh  of  North  Carolina  was  appointed  comp- 
troller, and  Oliver  Wolcott  of  Connecticut  auditor.  Ill 
health  soon  caused  Eveleigh  to  retire,  and  Wolcott  was 
promoted  to  the  vacancy. 

The  war  department  was  established  a  few  days  earlier 
than  the  treasury  department ;  but  the  law  was  enacted 
so  hurriedly,  that  no  provision  was  made  for  the  disburse- 
ment of  funds  appropriated  to  it,  or  for  the  settlement  of 
its  accounts.  The  '  treasury  department  collected  the 
public  funds,  and  accounted  for  them  :  the  war  depart- 
ment was  solely  one  of  expenditure.  The  secretary  of 
war  ought  to  have  been  authorized  to  draw  from  the 
treasury  the  sums  appropriated  for  the  use  of  his  depart- 
ment, and  to  have  been  solely  responsible  for  the  expendi- 
ture of  them.  The  secretary  of  the  treasury  ought  to 
have  had  no  concern  with  the  war  department,  except 
giving  warrants  for  the  moneys  thus  appropriated.  Such 
warrants  would  have  been  an  acquittal  to  the  treasury 

1  The  old  board,  too,  had  bequeathed  to  the  treasury  department  a 
vast  chaotic  mass  of  accounts  which  had  accumulated  under  the  Confed- 
eration. —  GiBBs's  Administrations  of  Washington  and  Adams,  vol.  i.  p.  28. 

2  Webster's  Speeches,  vol.  i.  p.  199. 


8  FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1789. 

department  and  a  charge  against  the  secretary  of  war. 
The  accounts  relating  to  their  expenditure,  made  under 
his  sole  direction,  and  finally  adjusted  by  the  auditor  and 
comptroller  of  the  treasury,  would  have  constituted  his 
acquittal.  Thus  the  responsibility  of  each  department,  as 
well  as  its  operations  and  accounts,  would  have  been  dis- 
tinct and  complete. 

Instead  of  adopting  this  plan,  the  duties  of  the  two  de- 
partments in  expending  money  for  the  military  and  naval 
service  were  blended,  and  the  part  allotted  to  each  depart- 
ment was  not  very  precisely  defined.  It  may  be  remarked, 
however,  that  all  contracts  for  rations,  clothing,  and  maga- 
zine supplies,  were  made  at  the  treasury ;  while  all  expendi- 
tures for  other  objects  were  made  by  the  secretary  of  war. 

In  this  manner  the  business  was  conducted  until  1792, 
when  the  office  of  "  Accountant  for  the  War  Department " 
was  created.  He  was  charged  "with  the  settlement  of 
all  accounts  relative  to  the  pay  of  the  army,  the  subsist- 
ence of  officers,  bounties  to  soldiers,  the  expenses  of  the 
recruiting-service,  and  the  incidental  and  contingent  ex- 
penses of  the  department."  Two  other  features  of  the 
Act  require  mention.  The  first  was,  all  contracts  and 
purchases  for  supplying  the  department  of  war  were  to 
be  made  by  the  treasury  department.  The  other  feature 
was,  all  expenditures  for  the  pay  of  the  army,  the  sub- 
sistence of  officers,  bounties  to  soldiers,  the  expenses  of 
the  recruiting-service,  and  the  incidental  and  contingent 
expenses  of  the  war  department,  were  to  be  made  by  the 
secretary  of  war,  the  money  to  pay  therefor  having  pre- 
viously been  ordered  from  the  treasury.^ 

1  Act,  May  8,  1792,  2  Cong.,  first  session,  chap.  37. 


1789.]        FORMATION  OF  THE  TREASURY  DEPARTMENT.         9 

In  consequence  of  this  legislation,  the  expenditures  of 
the  war  department  fell  under  two  general  divisions,  — 
those  for  supplies  of  all  kinds,  and  those  for  services 
and  contingent  expenses.  The  expenditures  of  the  first 
class  were  neither  controlled  by  the  secretary  of  wai\ 
nor  did  he  account  for  them :  they  were  put  under  the 
management  of  the  treasury  department.  The  business 
was  conducted  in  the  following  manner :  the  secretary 
of  war  informed  the  secretary  of  the  treasury  by  letter 
what  supplies  were  needed  by  his  department,  when  and 
where  they  were  wanted,  and  in  some  cases  furnished 
the  necessary  samples,  patterns,  forms,  and  models.  The 
secretary  of  the  treasury  complied  with  the  demand  of 
the  war  department  to  the  extent  of  the  appropriations 
authorized ;  the  purveyor  of  public  supplies,  whose  office 
was  created  by  a  subsequent  Act,  executing  the  demand 
under  the  secretary  of  the  treasury's  direction. 

At  that  time  two  modes  of  procuring  supplies  were 
employed  by  the  treasury,  —  contract  and  purchase.  The 
contracts  were  of  two  descriptions,  —  the  larger,  such  as 
those  for  clothing  and  provisions,  which  were  executed 
by  the  secretary  of  the  treasury  himself,  and  distinct 
accounts  of  which  were  opened  in  the  public  books ;  and 
the  smaller  contracts,  such  as  those  for  occasional  sup- 
plies, which  were  concluded  by  the  purveyor,  and  com- 
prised in  the  general  settlement  of  his  accounts.  Pur- 
chases of  supplies,  when  they  could  be  effected  at  the 
seat  of  government,  were  made  by  the  purveyor ;  and 
this  was  his  chief  employment.  For  purchases  in  the 
country,  and  for  procuring  occasional  supplies  at  mili- 
tary and  recruiting  posts,  the  secretary  of  the  treasury 


10         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1789, 

employed  the  agency  of  the  supervisors  and  the  collect- 
ors of  the  customs. 

The  accounts  of  the  purveyor,  and  of  all  agents  and 
contractors  who  procured  or  furnished  supplies,  were  set- 
tled at  the  treasury,  without  any  agency  or  interference 
of  the  war  department.  They  passed  first  under  the 
examination  of  the  auditor,  who  reported  them  to  the 
comptroller,  whose  decision  was  final. 

When  supplies  were  procured  and  delivered  on  requi- 
sitions of  the  war  department,  they  became  subject  to 
the  disposal  of  the  secretary  of  war ;  and  the  duty  and 
responsibility  of  the  secretary  of  the  treasury  ceased. 

The  second  class  of  expenditures  in  the  department 
of  war  —  those  for  services  and  contingent  expenses, 
including  the  pay  of  the  army,  subsistence  of  the  officers, 
bounties,  recruiting,  protection  of  the  frontiers,  etc.  — 
were  made  under  the  sole  direction  of  the  secretary  of 
war.  The  money  for  these  objects  was  drawn  from  the 
treasury  in  the  following  manner :  the  secretary  of  war 
addressed  a  letter  to  the  secretary  of  the  treasury,  re- 
questing an  advance  of  money  to  the  treasurer  of  the 
United  States  in  his  capacity  as  treasurer  for  the  war 
department.  The  letter  specified  the  sum  wanted  and 
the  head  of  the  appropriation  under  which  it  was  to  be 
applied.  The  secretary  of  the  treasury  complied  with 
the  request  to  the  extent  of  the  appropriation  made  for 
that  purpose.  A  warrant  for  the  sum,  signed  by  the 
secretary,  countersigned  by  the  comptroller,  and  record- 
ed by  the  register,  was  drawn  on  the  treasurer  of  the 
United  States  in  favor  of  himself  as  treasurer  for  the  war 
department.     When  the  warrant  was   paid,    the  amount 


1789.]        FORMATION  OF  THE  TREASURY  DEPARTMENT.      11 

was  charged  to  the  war  department  in  the  books  of  the 
treasury,  and  from  that  time  remained  subject  to  the  dis- 
posal of  the  secretary  of  war,  who  drew  it,  as  occasion 
required,  by  warrants  signed  by  himself,  and  counter- 
signed by  the  accountant.  The  latter  officer  kept  an 
account  of  all  these  warrants,  and  to  him  every  account 
for  the  expenditure  of  money  drawn  under  them  was 
rendered  in  the  first  instance.  He  adjusted  them,  and 
reported  them,  like  all  other  accounts  of  public  expendi- 
ture, to  the  auditor  of  the  treasury.  From  him  they 
passed  to  the  comptroller,  whose  action  was  conclusive. 

In  the  latter  branch,  therefore,  of  the  expenditures  for 
the  department  of  war,  the  control  and  responsibility  of 
that  department  were  complete,  and  the  accounts  were 
susceptible  of  a  clear  and  distinct  division  and  adjust- 
ment. The  secretary  of  war  drew  from  the  treasury 
the  moneys  appropriated  by  law,  expended  them,  and 
accounted  for  them.^  But  in  the  other  branch  of  expen- 
ditures —  those  which  related  to  supplies  for  the  use  of  the 
war  department  —  there  was  a  divided,  and  consequently 
an  imperfect,  responsibility.  The  secretary  of  war  judged 
what  supplies  were  necessary ;  but  instead  of  purchasing 
them,  and  drawing  money  from  the  treasury  to  pay  for 

1  In  expending  them,  and  accounting  therefor,  the  accountant  of  the 
department  was  the  agent  of  the  secretary,  and  made  up  and  stated  his 
accounts,  and  submitted  them,  with  the  vouchers  belonging  to  them,  to  the 
auditor  and  comptroller  of  the  treasury,  who  settled  them  like  the  accounts 
of  all  other  persons  intrusted  with  public  money.  The  secretary  of  the 
treasury  had  no  further  concern  in  the  business  than  to  pay  to  the  secre- 
tary of  war  the  moneys  appropriated  by  law  for  that  department.  In 
respect  to  this  class  of  expenditures  there  was  a  perfect  responsibility  in 
each  department,  —  in  the  treasury,  for  its  payment;  in  the  other,  for  its 
expenditure. 


12         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1789. 

them,  he  informed  the  secretary  of  the  treasury  what  was 
wanted,  and  he  procured  them.  Thus  the  former  officer 
was  responsible  for  making  known  the  need  of  supplies ; 
and  the  latter  officer,  for  their  quality,  price,  and  delivery. 
The  moneys  thus  appropriated  for  the  war  department 
were  expended  by  the  secretary  of  the  treasury,  who  was 
converted,  with  respect  to  these  expenditures,  into  a  sub- 
ordinate agent  of  the  department  of  war.  The  supplies 
were  purchased  for  one  purpose,  and  charged  to  the  corre- 
sponding head  of  appropriation.  When  placed  in  the 
public  stores,  they  were  found  useful  for  another  purpose, 
and  were  accounted  for  under  another  head.  The  sec- 
retary of  war,  who  used  them,  did  not  know  to  what 
account  they  were  charged ;  and  the  secretary  of  the 
treasury,  who  purchased  and  charged  them,  did  not  know 
for  what  purpose  they  were  used.  Hence  there  resulted 
an  endless  confusion  and  uncertainty  in  the  accounts  ;  and 
the  apprehended  difficulty  to  ascertain  what  expenses 
were  incurred  for  any  particular  branch  of  the  military 
service  often  changed  into  an  impossibility.^ 

When  the  navy  department  was  created,  the  same 
state  of  things  existed  therein  for  a  time.  At  last  a  new 
arrangement  was  devised  for  obviating  the  difficulties 
described,  which  was  as  simple  as  it  was  effective.  This 
consisted  in  endowing  the  secretaries  of  war  and  of  the 
navy  with  the  same  powers  and  responsibilities  with 
respect  to  expenditures  for  supplies  as  the  former  already 
possessed  with  respect  to  expenditures  for  services.  The 
office  of  accountant  for  the  navy  department  was  estab- 

1  Harper's  Report  on  Expenditures  of  the  Ex.  Departments,  July  5, 
1798,  1  Finance,  p.  590. 


1789.]        FORMATION  OF  THE  TREASURY  DEPARTMENT.      13 

lished ;  the  purveyor  of  supplies  was  put  under  the  direc- 
tion of  the  navy  and  war  departments ;  and  the  money 
appropriated  for  each  department  was  thereafter  accounted 
for  under  such  separate  heads  of  appropriation  as  con- 
veyed a  clear  idea  of  the  amount  expended  in  each  de- 
partment of  the  public  service.^ 

1  Act,  July  16, 1798,  5  Cong.,  second  session,  chap.  85. 


14         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1789. 


CHAPTER  II. 

HOW  THE  ACCOUNTS  AND  DEPOSITS  WEEE  KEPT. 

Before  tracing  the  laws  enacted  for  funding  and 
paying  the  public  debt,  we  shall  describe  how  Hamilton 
kept  the  public  accounts  and  deposits.  If  this,  as  well 
as  the  preceding  chapter,  seem  uninviting  to  the  reader, 
let  him  be  assured  that  neither  could  be  omitted  in  a 
fairly  rounded  history  of  the  national  finances. 

When  the  new  government  was  fairly  launched,  it 
collected  an  income  from  imports  and  tonnage,  spirits 
distilled  within  the  United  States,  from  fines,  penalties, 
and  forfeitures,  domestic  and  foreign  loans,  revenues  of 
the  post-office,  duties  on  patents,  coined  cents,  and  debts 
from  individuals. 

The  duties  on  imports  and  tonnage  were  received  by 
the  collectors  of  customs.  The  duties  on  spirits  distilled 
within  the  United  States  were  received  by  collectors  of 
divisions  into  which  the  country  was  divided,  who  paid 
them  to  the  inspectors  of  surveys,  by  whom  they  were 
paid  to  the  supervisors  of  districts.  The  fines,  penalties, 
and  forfeitures  incurred,  were  received  by  the  marshals, 
who  paid  them  to  the  collectors  of  customs  and  to  the 
supervisors  of  districts,  except  those  incurred  for  crime 
against  the  United  States,  which  were  sent  by  the  mar- 
shals directly  to  the  treasury.     The  domestic  loans,  duties 


1789.]         HOW  ACCOUNTS  AND  DEPOSITS  WERE  KEPT.         15 

on  patents,  and  debts  from  individuals,  were  paid  into  the 
treasury  without  any  intermediate  agency.  Foreign  loans 
were  received  by  the  bankers  abroad  under  whose  imme- 
diate agency  they  were  made.  The  revenue  of  the  post- 
office  was  received  by  the  deputy  postmasters,  who  paid 
it  to  the  postmaster-general ;  and  the  coined  cents  were 
received  by  the  treasurer  of  the  mint. 

The  treasurer  was  the  medium  of  all  receipts  and 
disbursements  of  public  moneys.  All  receipts  and  dis- 
bursements must  be  sanctioned  by  warrants  drawn  on 
and  in  favor  of  that  officer.  These  warrants  were  signed 
by  the  secretary  of  the  treasury,  countersigned  by  the 
comptroller,  and  registered  by  the  register.  Warrants 
for  receipts  required  an  acknowledgment  of  the  treasurer 
in  order  to  discharge  the  payer ;  and  warrants  for  dis- 
bursements required  an  equivalent  acknowledgment  by 
the  person  receiving  them  to  discharge  the  treasurer. 

Five  modes  were  adopted  in  regard  to  receipts,  each  of 
which  may  be  briefly  explained.  The  first  mode  was  for 
the  treasurer  to  draw  bills  or  drafts,  under  the  special 
direction  of  the  secretary  of  the  treasury,  on  those  who 
had  public  funds  in  their  hands.  Such  drafts,  before 
leaving  the  treasurer,  were  registered  and  countersigned 
by  the  register  of  the  treasury,  or  by  a  confidential  clerk 
designated  for  that  purpose.  This  mode  applied  to  money 
drawn  from  other  countries,  as  well  as  to  money  accruing 
in  the  United  States,  except  that  foreign  bills  were  always 
countersigned  by  the  register  himself. 

The  second  mode  was  by  making  deposits  in  the  several 
banks  by  a  general  order  of  the  secretary  of  the  treasury. 
As  soon  as  they  were  made,  they  were  passed  by  the  banks 


16         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1789. 

to  the  credit  of  the  treasurer.  The  officer  making  the 
deposits  —  who  was  either  a  supervisor  of  the  revenue, 
or  a  collector  of  the  customs  —  took  duplicate  receipts 
from  the  bank,  one  of  which  he  immediately  sent  to  the 
treasury,  while  retaining  the  other.  The  bank  also  made 
weekly  returns,  —  one  to  the  secretary  of  the  treasury, 
another  to  the  treasurer,  —  specifying  the  persons  making 
the  deposits  and  the  amount  of  them. 

The  third  mode  was  by  remittances  of  the  supervisors 
and  collectors  to  the  treasurer.  These  were  generally 
made  in  bank-bills,  though  sometimes  in  bills  or  orders 
on  individuals :  in  some  cases,  however,  they  were  made 
in  mutual  credits  and  in  specie.  Another  mode  was  by 
special  direction  from  the  secretary  of  the  treasury  to 
the  supervisors  and  collectors  of  the  customs  to  make 
advances,  provisionally,  for  certain  specified  purposes ; 
and  the  last  mode  was  by  warrants  on  persons  in  favor 
of  the  treasurer. 

The  first  four  modes  of  remitting  money  to  the  treasury, 
in  the  end  were  resolved  into  the  mode  last  described. 
All  advances  and  payments  were  always  sanctioned  by 
warrants.  No  party  who  paid  money  could  be  discharged, 
save  by  a  warrant  receipted  by  the  treasurer.  Bills  or 
drafts  drawn  by  him  were  either  deposited  in  a  bank, 
or  remitted  to  certain  public  officers  or  agents,  as  the 
secretary  of  the  treasury  directed. 

In  respect  to  disbursements,  one  mode  was  by  warrants 
issued  by  the  treasurer.  This  was  the  general  method, 
and  the  invariable  one  when  payments  were  made  im- 
mediately at  the  treasury.  The  second  mode  was  by 
drafts  drawn  by  the  treasurer,  under  special  order  of  the 


1789.]         HOW  ACCOUNTS  AND  DEPOSITS  WERE  KEPT.         17 

secretary  of  the  treasury,  registered  and  countersigned 
by  the  register.  The  third  mode  was  by  a  special  order 
of  the  secretary  of  the  treasury  to  the  supervisors  and 
collectors  to  make  advances  of  money  provisionally  for 
certain  specified  purposes.  These  directions  were  never 
given  with  regard  to  any  money  which  had  passed  to  the 
credit  of  the  treasurer.  The  last  two  modes  were  finally 
resolved  into  the  first ;  so  that  warrants  finally  issued  for 
the  sums  paid  either  on  the  drafts  of  the  treasurer,  or 
under  the  direction  of  the  secretary.  These  were  the 
modes  adopted  by  Hamilton  for  disbursing  the  public 
funds ;  but  in  a  very  few  instances  there  were  some 
slight  departures,  which  need  not  be  described. 

The  forms  established  for  keeping  the  public  accounts, 
therefore,  were  based  on  the  following  principles :  no 
payment  into  the  treasury  was  valid  so  as  to  justify  a 
definitive  credit  to  the  payer,  unless  the  treasurer's 
receipt  was  indorsed  on  a  warrant  in  the  creditor's  favor, 
signed  by  the  secretary  of  the  treasury,  countersigned 
by  the  comptroller,  and  recorded  and  attested  by  the 
register;  and  no  payment  from  the  treasury  was  valid, 
unless  made  in  pursuance  of  a  warrant  on  the  treasury, 
signed  by  the  secretary  of  the  treasury,  countersigned 
by  the  comptroller,  and  attested  by  the  register.^ 

Such  is  the  outline  of  the  system  adopted  by  Hamil- 
ton for  receiving  and  disbursing  the  public  funds.  The 
preservation  of  the  system,  with  only  slight  changes  by 
every  succeeding  secretary,  is  proof  of  its  excellence. 
It  has  withstood  the  test  of  a  hundred  years,  and  still 
remains  not  less  effective  than  when  first  adopted. 

1  Baldwin's  Report  on  Condition  of  the  Treas.  Department,  May  22, 
1794,  1  Finance,  p.  281. 


18         FINANCIAL  HISTORY  OP  THE  UNITED  STATES.       [1809. 

In  the  beginning,  the  public  money  was  kept  in  several 
banks,  thus  continuing  the  usage  established  by  the  Con- 
federation. The  treasurer  himself  never  actually  had 
any  public  money  in  his  possession.  It  was,  in  fact,  in 
a  bank  from  the  moment  of  receiving  it  until  disbursed. 
The  only  exceptions  were  bank-bills,  orders  on  individu- 
als, mutual  credits,  and  specie  remitted  by  the  super- 
visors of  the  revenue  and  collectors  of  the  customs  to 
the  treasurer.  As  soon  as  received,  they  were  deposited 
in  a  bank  to  the  credit  of  the  treasurer.  Nor  did  the 
secretary  of  the  treasury,  or  any  other  officer  of  the  treas- 
ury department,  at  any  time  have  possession  of  public 
money,  except  in  a  few  instances  too  unimportant  to  be 
mentioned. 

Previous  to  1816  no  law  was  enacted  about  the 
deposits,  and  the  secretary  of  the  treasury  exercised  his 
own  authority  in  making  them.^  During  the  first  three 
years  of  the  government,  the  Bank  of  North  America, 
which  was  now  thriving  under  a  charter  from  the  State 
of  Pennsylvania,  was  employed  for  that  purpose.  The 
banks  of  New  York,  of  Massachusetts,  and  of  Maryland, 
were  next  selected  and  used.  When  the  United  States 
bank  was  founded,  in  1791,  this  was  added  to  the  num- 
ber.2  From  time  to  time  deposits  were  placed  in  other 
banks.^  In  1809  Congress  required  disbursing-officers 
to  keep  "  the  public  moneys  in  their  hands "  in  some 
"  incorporate  bank,  whenever  practicable,"  which  was  to 
be  "  designated .  for  the  purpose  by  the  President  of  the 

1  Woodbury's  Report  on  the  Finances,  September,  1837. 

2  Woodbury's  Report  on  the  Public  Money,  December,  1834. 

8  Gallatin's  Report  to  the  House,  Dec.  23,  1806,  2  Finance,  p.  216. 


1816.]         HOW  ACCOUNTS  AND  DEPOSITS  WERE  KEPT.         19 

United  States."  Nothing  was  said  concerning  the  depos- 
its of  collecting-officers.^ 

In  February,  1811,  just  before  the  expiration  of  the 
charter  of  the  United-States  bank,  and  after  Congress 
had  refused  to  extend  it,  Gallatin,  who  was  secretary  of 
the  treasury,  selected  other  banks  as  public  depositories. 
The  only  condition  required  of  them  in  the  beginning 
was,  that,  in  making  discounts,  preference  should  be 
given  to  those  having  custom-house  bonds  to  discharge. 
The  reason  for  imposing  this  condition  was  a  very  just 
one.  The  closing  of  the  United-States  bank  and  its 
branches  would  doubtless  cause  a  pressure  on  other  bank- 
ing-institutions for  pecuniary  assistance.  Of  course,  it 
was  of  primary  importance  to  the  government  to  collect 
its  revenue  with  facility :  consequently  Gallatin  exacted 
this  requirement,  so  that  the  government  might  not 
suffer  from  the  sudden  dissolution  of  the  national  bank. 
Afterward  the  secretary  required  from  each  bank  a 
monthly  statement  of  its  condition.^  By  order  of  the 
President  the  same  banks  were  used  by  collecting  as 
well  as  by  disbursing  officers. 

The  deposits  were  kept  in  this  way  until  1816,  when 
the  second  United-States  bank  was  founded.  Its  charter 
provided,  "  that  the  deposits  of  the  money  of  the  United 
States,  in  places  in  which  the  said  bank  and  branches 
thereof  may  be  established,  shall  be  made  in  said  bank 
or  branches  thereof,  unless  the  secretary  of  the  treasury 
shall  at  any  time  otherwise  order  and  direct;  in  which 
case,  the  secretary  of  the  treasury  shall  immediately  lay 

1  Act,  10  Cong.,  second  session,  chap.  28. 

2  Gallatin's  Report  on  Public  Deposits  in  Banks,  Jan.  13, 1812. 


20         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1816. 

before  Congress,  if  in  session,  and,  if  not,  immediately 
after  the  commencement  of  the  next  session,  the  reasons 
of  such  order  or  direction."  ^ 

The  secretary  of  the  treasury,  therefore,  retained  dis- 
cretionary power  in  keeping  the  public  deposits.  This 
power  was  exercised,  to  a  limited  extent,  during  the  next 
three  years;  but  in  1832  he  employed  it  in  a  terrific 
manner.  He  removed  all  the  deposits  from  the  National 
bank,  and  put  them  in  State  banks.  Their  removal  fired 
the  entire  country  with  intense  excitement,  which  burned 
for  a  long  period  with  undiminished  fury.  Even  when  the 
excitement  ceased,  the  evil  consequences  of  the  act  con- 
tinued, like  the  billows  of  the  Atlantic,  which  heave  and 
roll  long  after  the  storm  which  set  them  in  motion  has 
passed  away. 

The  money  received  by  the  government  in  the  be- 
ginning consisted  of  bank-notes  and  specie.  Hamilton 
instructed  the  collectors  of  customs  to  receive  certain 
State-bank  notes,  payable  near  the  seat  of  government, 
and  to  credit  them  as  cash,  when  forwarded  by  mail,  or 
otherwise,  to  the  treasurer.  When  the  United-States 
bank  was  organized  in  1791,  its  notes  were  accepted  as 
equivalent  to  specie  by  the  government :  so  were  the 
notes  of  the  second  United-States  bank.  This  action 
by  Hamilton  and  his  successors  was  apparently  sanc- 
tioned by  Congress  in  1816.  After  that  time  deposits 
were  made  in  specie,  or  bills  of  the  United-States  bank, 
or  of  such  other  specie-paying  banks  as  the  government 
depositors  were  willing  to  receive  at  par,  and  credit  as 
cash.     The  practice  of  receiving  bills  on  special  deposit, 

1  Sect.  16. 


ISl?.]         HOW  ACCOUNTS  AND  DEPOSITS  WERE  KEPT.         21 

which  was  commenced  in  1814,  and  continued  for  four 
years,  was  discontinued  in  1818;  and  payments  thereafter 
were  made  in  specie  or  its  equivalent.^ 

The  government  sustained  no  losses  from  the  employ- 
ment of  the  National  banks  as  depositories.  The  State 
banks  employed  after  1817  were  less  faithful.^  During 
the  succeeding  seventeen  years,  the  losses  exceeded  one 
million  dollars  from  employing  them  ;  although  the  second 
United  States  bank  flourished  nearly  the  whole  period, 
and  kept  most  of  the  deposits.^ 

1  Woodbury's  Annual  Report,  December,  1834. 

2  Woodbury's  Report  on  the  Public  Money,  December,  1834.  "  Not  a 
sirifjle  selected  State  bank  failed  between  the  expiration  of  the  old  charter 
and  the  grant  of  the  new  one."  —Woodbury. 

3  Woodbury's  Annual  Report,  December,  1838. 


22         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1789. 


CHAPTER  III. 

THE    FUNDING    OF    THE    REVOLUTIONARY    DEBT. 

Perhaps  the  gravest  subject  that  ever  confronted  Con- 
gress was  the  Revolutionary  debt.  The  more  thoughtful 
political  leaders  felt  that  the  destiny  of  the  republic 
would  turn  upon  the  plans  adopted  for  determining  the 
amount,  and  providing  for  its  payment.  No  one  saw 
more  difficulties  than  Hamilton,  yet  he  was  confident  of 
finding  a  safe  path  for  the  nation.  Nor  was  his  faith, 
begotten  by  a  profound  study  of  the  subject,  shared  by 
him  alone.  When  President  Washington  was  once  con- 
versing with  Robert  Morris  about  the  condition  of  the 
finances  of  the  country,  he  inquired,  "  What  are  we  to  do 
with  this  heavy  debt  ?  "  To  which  Morris  replied,  "  There 
is  but  one  man  in  the  United  States  who  can  tell  you : 
that  is  Alexander  Hamilton."  ^  Doubtless  Morris's  reply 
was  still  fresh  in  Washington's  mind  when  selecting 
Hamilton  for  chief  of  the  treasury  department. 

Soon  after  the  first  convening  of  Congress,  the  House 
instructed  Hamilton  to  prepare  a  report  on  the  public 
debt  for  presentation  at  the  next  session.  The  subject 
was  vast  and  intricate :  nevertheless,  the  clear  eye  of 
Hamilton  was  able  to  pierce  through  it,  and  discover  the 
true   principles   of   settling   the   multifarious   obligations 

1  Hamilton's  Hist,  of  Republic,  vol.  iv.  p.  30. 


1789.]         FUNDING   OF  THE  REVOLUTIONARY  DEBT.  23 

of  the  government,  and  also  of  providing  for  their  pay- 
ment after  the  amount  should  be  determined. 

The  public  indebtedness  was  of  two  kinds,  —  foreign 
and  domestic.  The  foreign  creditors  were  France,  Hol- 
land, and  Spain.  The  amount  due  to  each  government 
was  clearly  known ;  and  no  one  thought  of  repudiating,  or 
changing  the  terms  of,  the  several  contracts  under  which 
the  loans  had  been  made.  A  small  sum  also  was  due  to 
foreign  officers  who  had  served  in  the  war  for  independ- 
ence. 

The  domestic  indebtedness  was  composed  of  three 
branches.  In  the  first  place  may  be  mentioned  the 
obligations  incurred  directly  by  the  government.  These 
consisted  originally  of  loan-office  certificates,  amounting 
nominally  to  i^GT, 189,816.15.  Certificates  also  had  been 
given  to  persons  from  whom  supplies  had  been  seized  for 
the  use  of  the  array  ;  and  other  certificates  had  been 
given  by  commissioners  in  settlement  of  claims  and  to 
soldiers.  To  these  must  be  added  bills  of  credit,  and 
indents  given  for  interest  accruing  on  loan-office  certifi- 
cates and  the  other  certificates  just  mentioned.  Lastly 
there  was  the  "  registered  debt,"  as  it  was  called,  consist- 
ing of  certificates  issued  by  the  register  of  the  treasury  in 
lieu  of  other  obligations. 

A  very  considerable  portion  of  this  indebtedness  had 
been  transferred  by  the  original  holders  at  varying  dis- 
counts to  other  persons ;  and  one  of  the  first  questions 
started  was.  Should  the  present  holders  be  paid  the  face- 
value  of  the  debts  thus  purchased,  or  only  what  they 
had  paid  with  interest  ?  From  this  question  sprung  an- 
other; namely,  whether  the  difference  between  the  two 
sums  ought  not  to  be  paid  to  the  original  holders. 


24        FINANCIAL  HISTOKY  OF  THE  UNITED  STATES.       [1790. 

These  questions  were  warmly  debated  in  Congress, 
and  outside  by  the  people.  "An  American  Farmer" 
exclaimed,  "  Can  it  be  thought  reasonable  or  just  that 
the  assignee  should  now  be  entitled  to  that  which  the 
assignor  honorably  relinquished  to  the  distressed  state 
of  the  country?  Must  it  not  rather  be  regarded  as  the 
most  atrocious  act  of  iniquity  and  injustice  that  ever 
disgraced  the  annals  of  civil  society,  that,  to  secure  the 
full  payment  of  the  debt  to  the  assignee,  a  funding-sys- 
tem should  take  place  by  which  the  original  creditors  and 
their  posterity  will  become  the  hewers  of  wood  and  the 
drawers  of  water  to  a  foreign  moneyed  interest  ?  "  ^ 

Hamilton  had  reasoned  with  consummate  ability  in 
favor  of  executing  the  contracts  of  the  government  with- 
out reference  to  their  transfer  from  one  person  to  another. 
The  majority  of  Congress  agreed  with  him  ;  although  there 
were  strong  minds  who  thought  otherwise,  among  whom 
were  Madison  and  Jefferson.  Public  opinion,  however, 
though  not  united  strongly,  coincided  with  the  Hamil- 
tonian  view.^ 

The  following  plan  was  devised  for  funding  this  portion 
of  the  public  debt.  A  loan  was  to  be  opened  by  the 
secretar}^  of  the  treasury,  at  the  treasury  office,  and  by 
commissioners  appointed  for  that  purpose,  in  each  State. 

1  Letters  addressed  to  the  Yeomanry  of  U.  S.,  p.  7. 

2  Witherspoon  wrote  to  Hamilton,  "  We  have  still  an  idea,  meeting  us 
in  conversation  and  publication,  that  a  discrimination  must  be  made 
between  original  creditors,  and  speculators  as  they  call  them.  Discrimi 
nation  is  totally  subversive  of  public  credit.  Such  a  thing  registered  and 
believed  on  the  exchange  of  London  would  bring  the  whole  national  debt 
to  the  ground  in  two  hours."  —  Hamilton's  Hist,  of  Republic,  vol.  iv.  p.  74, 
note. 


1790.]  FUNDING    OF    THE   REVOLUTIONARY   DEBT.  25 

The  loan  was  to  be  large  enough  to  include  the  whole 
of  this  portion  of  the  public  debt.  The  holders  were 
allowed  to  subscribe  for  the  loan,  and  pay  therefor  in  the 
evidences  of  debt  they  held  against  the  government  at 
their  specie  value,  except  that  the  Continental  money  was 
to  be  received  at  the  rate  of  one  hundred  dollars  in  bills 
to  one  in  specie.  The  subscribers  were  to  receive  for  the 
principal  due  to  them  stock  for  two-thirds  of  the  princi- 
pal, bearing  six  per  cent  interest,  payable  quarterly,  the 
government  having  the  right  to  redeem  two  per  cent  of 
the  stock  every  year  if  it  desired,  though  under  no  obli- 
gation to  do  this.  For  the  remaining  one-third  of  the 
principal  due  to  the  subscribers,  they  were  to  receive  the 
same  amount  of  stock,  bearing  six  per  cent  interest  after 
the  year  1800,  and  redeemable  on  the  same  terms  as  the 
other  stock  received  for  the  two-thirds  of  the  principal. 

With  respect  to  funding  the  interest  due  to  this  class  of 
creditors,  it  was  to  be  reckoned  on  their  various  claims  to 
Dec.  1,  1790,  and  certificates  were  to  be  given  therefor, 
bearing  three  per  cent  interest,  and  redeemable  whenever 
the  government  should  make  provision  for  that  purpose. 
To  persons  holding  indents  taken  for  interest  due  on 
loan-office  certificates  and  other  obligations,  similar  cer- 
tificates were  to  be  given  as  those  last  mentioned. 

Another  portion  of  the  public  debt,  which  had  been 
incurred  by  the  States  for  carrying  on  the  war,  Hamilton 
maintained  the  government  ought  to  assume. 

The  controversy  with  respect  to  assuming  it  was  bitter 
and  prolonged  ,  but  the  view  of  the  secretary  finally  pre- 
vailed, after  a  hard  struggle,  by  a  majority  of  only  two 
votes.     The  Southern  members  were  the  chief  opponents, 


26         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1789. 

and  some  of  them  were  persuaded  to  yield  by  a  concession 
on  the  part  of  Northern  members  concerning  the  final 
locatit)n  of  the  capital.  Thus  was  the  national  honor 
saved,  and  the  capital  located  on  the  banks  of  the 
drowsy  Potomac. 

The  indebtedness  incurred  by  the  States  was  very  varied ; 
and  in  some  cases  the  accounts  were  so  confused,  that  it 
was  impossible  to  find  out  the  exact  amount  expended 
for  war  purposes.  One  form  of  indebtedness,  however, 
was  common  to  all  of  them ;  namely,  bills  of  credit  of  the 
new  emission,  for  the  payment  of  which  the  States  were 
responsible.  In  regard  to  the  other  State  obligations, 
they  varied  much  in  the  several  States.  In  Massachu- 
setts, for  example,  half-pay  notes  had  been  issued  to  the 
widows  and  orphans  of  deceased  officers,  and  certificates 
for  the  interest  due  on  them,  beside  balances  stated  from 
the  books  of  the  commissioners  for  settling  with  the  Con- 
tinental army.  The  Connecticut  debt  consisted  of  notes 
payable  to  the  army,  and  others  issued  by  special  Act  of 
the  Assembly,  notes  issued  for  remounting  dragoons,  new 
ones  issued  in  place  of  old  notes  reloaned,  certificates  for 
interest  on  State  debt,  unpaid  balances  of  orders  payable 
from  a  specific  tax.  State  bills  emitted  in  1780,  pay-table 
orders,  and  old  emissions  created  before  the  war.  In 
New  York  the  debt  was  composed  of  certificates  for  money 
loaned  by  individuals,  horse  notes,  notes  issued  for  pay 
and  for  depreciation  of  pay  and  pensions,  certificates  for 
the  payment  of  levies  and  militia,  for  claims  on  forfeited 
estates,  and  bills  of  credit.  In  New  Jersey  certificates 
were  also  given  for  depreciation  of  pay ,  and  the  county 
commissioners  had  issued  certificates  for  military  services^ 


1789.]  FUNDING   OF   THE   REVOLUTIONARY   DEBT.  27 

Another  kind  of  certificates  had  been  granted  for  demands 
against  forfeited  estates.  In  Virginia  was  the  army  debt, 
also  that  of  the  loan-office  certificates  for  paper  money 
funded,  balances  to  foreign  creditors,  beside  numerous 
land-warrants,  which  in  many  cases  had  been  given  for 
the  same  tract  of  land.  The  debt  of  South  Carolina  was 
reduced  to  a  more  systematic  form,  and  consisted  of  prin- 
cipal and  special  indents  and  a  foreign  debt.  The  indebt- 
edness of  the  other  States  had  spread  out  in  many  ways, 
some  of  which  were  so  dark  and  crooked,  that  it  was  quite 
impossible  to  go  far  in  them  without  getting  lost.^  It  was 
this  confusion  of  the  State  finances  which  led  Fisher 
Ames  to  remark,  "  We  perceive  a  great  unavoidable 
confusion  throughout  the  whole  scene,  presenting  to  the 
imagination  a  deep,  dark,  and  dreary  chaos,  impossible  to 
be  reduced  to  order  without  the  mind  of  the  architect  is 
clear  and  capacious,  and  his  power  commensurate  with  the 
occasion."  The  financial  condition  of  our  country  was 
not  unlike  that  of  France  after  the  death  of  Louis  XIV., 
when  it  is  said  that  only  the  most  vague  notions  prevailed, 
even  among  financiers,  of  the  nature  and  amount  of  the 
public  indebtedness. 

The  aggregate  debt  of  the  States,  which  had  been  in- 
curred in  sustaining  the  common  cause  against  Great 
Britain,  was  supposed  to  be  twenty-five  million  dollars. 
Twenty-one  millions  and  a  half  were  assumed  as  the 
amount  expended ;  and  Congress  proposed  to  issue  a 
loan  for  this  sum,  to  which  the  States  might  subscribe, 
paying  therefor  in  certificates  or  notes  issued  by  them 
for  debts  contracted  prior  to  the  1st  of  January,  1790. 

1  Schedule  E,  appended  to  Hamilton's  Report  on  the  Public  Credit. 


28 


FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1790. 


The  amount  of  the  subscription  of  each  State  was  limited 
as  follows :  — 


Maryland $800,000 

Virginia 3,500,000 

North  Carolina  .     .     .  2,400,000 

South  Carolina  .     .     .  4,000,000 

Georgia 300,000 


New  Hampshire 

$300,000 

Massachusetts     .     . 

4,000,000 

Rhode  Island      .     . 

200,000 

Connecticut    .     .     . 

1,600,000 

New  York      .     .     . 

.     1,200,000 

New  Jersey    .     .     . 

800,000 

Pennsylvania      .     . 

2,200,000 

Delaware  .... 

mi             A      J                     • 

200,000 

Total.     .     .    .      $21,500,000 


The  Act  provided,  that,  if  the  total  amount  sub- 
scribed by  any  State  exceeded  the  sum  specified  therein, 
a  similar  percentage  should  be  deducted  from  the  claims 
of  all  subscribers.  Four-ninths  of  the  stock  issued 
by  the  government  for  this  loan  bore  interest  at  six 
per  cent,  beginning  with  the  year  1792  ;  one-third  bore 
three  per  cent  interest,  beginning  at  the  same  time , 
and  the  balance,  two-ninths,  bore  six  per  cent  interest 
after  the  year  1800.  The  latter  kind  of  stock  was  to 
be  redeemed  whenever  provision  was  made  for  that  pur- 
pose. And,  with  respect  to  seven-ninths  of  the  stock, 
the  government  was  at  liberty  to  pay  two  per  cent  an- 
nually if  it  desired  ;  but  no  imperative  obligation  was 
created  to  pay  it. 

Nor  did  the  government  forget  to  provide,  that,  in  case 
a  State  did  not  subscribe  for  the  whole  amount  to  which 
it  was  entitled,  interest  should  be  paid  on  the  balance,  in 
trust  for  its  creditors.  This  undertaking  was  to  be  ex- 
ecuted until  there  should  be  a  settlement  of  accounts 
between  the  government  and  the  different  States.  More- 
over, each  State  was  made  a  debtor  to  the  government  for 


1790.]  FUNDING   OF    THE    REVOLUTIONARY   DEBT.  29 

the  amount  subscribed  and  paid.  Thus  the  creditors  of 
the  several  States  were  to  be  paid  by  the  government ; 
and  the  States  were  to  become  indebted  to  it,  and  cease 
to  be  debtors  to  individuals.^ 

There  yet  remained  a  third  kind  of  domestic  indebted- 
ness existing  between  the  States  and  the  government. 
The  former  had  advanced  money  to  the  government,  and 
the  latter  had  advanced  money  to  the  States.  It  was 
necessary  to  adjust  these  advances  in  order  to  distribute 
fairly  the  burden  which  each  State  ought  to  bear.  Three 
commissioners  were  appointed  to  examine  the  claims, 
which  were  to  be  presented  before  the  1st  of  July,  1791, 
""  and  to  determine  on  all  such  as  should  have  accrued  for 
the  general  or  particular  defence  during  the  war,  and  on 
evidence  thereof,  according  to  the  principles  of  generr.l 
equity,  so  as  to  provide  for  the  final  settlement  of  if.l 
accounts  between  the  United  States  and  the  States  indi- 
vidually." They  were  to  debit  the  States  with  advances 
made  to  them,  with  interest  thereon  to  the  beginning  of 
the  year  1790,  and  to  credit  them  with  disbursements  and 
advances,  with  interest  to  the  same  period ;  and,  having 
struck  the  balance  due  to  each  State,  were  to  find  the 
aggregate  of  all  the  balances,  which  was  to  be  apportioned 
among  the  States.  The  rule  for  apportioning  the  aggre- 
gate of  the  balances  was  to  be  the  one  prescribed  in  the 
National  Constitution  "for  the  apportionment  of  repre- 
sentation and  direct  taxes,"  as  fixed  by  the  first  census. 
The  difference  between  the  apportionments  and  the  re- 
spective balances  was  to  be  carried  in  a  new  account  to 

1  Act,  Aug.  4,  1790, 1  Cong.,  second  session,  chap.  34. 


30         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.        [1790. 

the  debit  or  credit  of  the  States  respectively,  as  the  case 
might  be.^ 

Such  were  the  forms  of  the  national  domestic  indebted- 
ness, and  the  plan  adopted  for  funding  it.  The  plan,  in 
every  essential  feature,  was  the  work  of  Hamilton.  Con- 
gress made  some  clumsy  alterations,  but  Hamilton  might 
well  rejoice  because  his  plan  had  not  been  more  disfigured. 

When  Hamilton  presented  his  first  report,  the  debt  of 
the  United  States,  as  nearly  as  could  be  ascertained,  was 
as  follows :  — 

Foreign  debt,  principal         ....     $10,070,307  00 
Foreign  debt,  interest 1,640,071  62 


$11,710,378  62 


Domestic  debt,  principal      ....     $27,383,917  74 
Domestic  debt,  interest        ....       13,030,168  20 


),414,085  94 


State  debt,  ascertained  ....     $18,201,205  60 

State  debt  balance,  estimated        .         .         .         6,798,794  40 


$25,000,000  00 


No  creditor  was  compelled  to  subscribe  to  the  loan : 
subscribing  was  purely  voluntary.  Indeed,  the  entire 
funding-scheme  was  only  a  proposal  by  the  government 
to  its  creditors.  If  they  rejected  it,  their  claims  were  not 
to  be  ignored.  On  the  other  hand,  Congress  provided 
that  nothing  in  the  Funding  Act  should  be  construed  "  in 
any  wise  to  alter,  abridge,  or  impair  the  rights  of  those 
creditors  of  the  United  States  "  who  should  not  subscribe 

1  Act,  Aug.  5, 1790, 1  Cong.,  second  session,  chap.  38.  The  following  sup- 
posititious statement  of  accounts  between  the  United  States  and  individual 


1790.] 


FUNDING    OF    THE   EEVOLTJTIONARY  DEBT. 


31 


to  the  loan,  "  or  the  contracts  upon  which  their  respective 
chxims  were  founded."  The  non-subscribing  creditors  were 
to  receive  during  the  year  1791  "a  rate  per  centum  on 
the  respective  amounts  of  their  respective  demands,  in- 
cluding interest  to  the  last  day  of  the  year,  equal  to 
interest  paj^able  to  subscribing  creditors,"  which  was  to 
be  paid  in  the  same  manner.  But  as  many  of  their  cer- 
tificates were  counterfeits,  or  had  not  "  been  liquidated  to 
specie  value,"  they  were  required  to  procure  new  ones 
before  receiving  payment  of  their  interest.^ 

Thus,  after  a  long  and  warm  controversy,  Congress 
launched  a  scheme  for  funding  the  public  debt.  It  was 
not  a  perfect  measure.  Rarely  does  a  piece  of  legislation 
exhibit  perfect  workmanship.  Ei'ery  law  is  the  embodi- 
ment of  a  compromise  of  opinion  on  the  part  of  the  law- 
makers, and  the  Funding  Act  was  not  the  product  of  any 
new  method  of  legislation.  It  was  merely  the  expression 
of  the  united  judgment  of  a  body  of  men,  many  of  whom 

States  was  appended  by  Hamilton  to  his  Report  on  Public  Credit,  illus- 
trating his  plan  for  the  payment  of  this  portion  of  the  public  debt  :  — 


Proportion  of 

Balance  due 

eacli    State  of 
tlie    a^greffate 
of   those    bal- 
ances, accord- 

Balances 

Balances  in 

STATES. 

Ratio. 

to  the  States 

against  cer- 

favor of  cer- 

respectively. 

tain  states. 

tain  States. 

ing  to  the  ratio. 

New  Hampshire     .     . 

3 

$.57,500 

$60,000 

$2,500 

Massachusetts    . 

8 

180,000 

160,000 

$2o',6oO 

Rhode  Island 

1 

20,000 

20,000 

Connecticut  . 

5 

110,000 

100,000 

lo'ooo 

New  York     . 

6 

135,000 

120,000 

15,000 

New  Jersey  . 

4 

72,500 

80,000 

7,500 

Pennsylvania 

8 

170,000 

160,000 

io',6oo 

Delaware  .     . 

1 

30,000 

20,000 

10,000 

Maryland  .     . 

6 

110,000 

120,000 

lo'.ooo 

Virginia     .     . 

10 

187, .500 

200,000 

12,500 

North  Carolina 

5 

90,000 

100,000 

10,000 

.. 

South  Carolina 

5 

87,.500 

100,000 

12,500 

Georgia     .     . 

3 

50,000 

60,000 

10,000 

•  ■ 

65 

$1,300,000 

$1,300,000 

$65,000 

$65,000 

^  Sec.  Hamilton's  Address  to  the  Public  Creditors,  Works,  vol.  vi.  p.  632. 


32         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.        [1790. 

yielded  somewhat  in  order  to  accomplish  something, 
though  realizing  the  possibility  of  framing  a  wiser  meas- 
ure. 

In  Congress  and  elsewhere  there  were  persons  opposed 
to  any  plan  of  funding.^  They  feared  that  such  an  adjust- 
ment of  the  debt  meant  an  indefinite  prolongation  in  the 
payment  of  it.  Had  not  this  been  the  effect  of  funding 
the  English  debt?  they  said,  and  will  not  a  similar  effect 
attend  the  transplanting  of  the  system  to  our  shore? 
With  every  step  forward  in  applying  the  principle  of 
funding,  their  opposition  increased,  reaching  its  height 
when  the  funding  of  the  indebtedness  of  the  States  was 
attempted.  Opposition  was  then  so  strong  as  to  jeopardize 
the  success  of  the  entire  movement.  When  the  smoke 
of  the  contest  had  cleared  away,  two  political  parties 
might  be  seen,  whose  opposition,  though  varying  much  in 
conviction,  power,  and  earnestness,  has  never  ceased. 

Some  persons  believed  that  funding  was  a  great  specu- 
lation, in  which  many  who  favored  it  expected  to  win 
fortunes  by  the  rise  in  the  value  of  the  public  debts. 
Jefferson  plainly  afQrmed  that  the  "  greedy  members  " 
of  Congress  who  voted  for  funding  acted  from  self-inter- 
est.2  A  large  portion  of  the  debt  had  been  sold  by  the 
original  holders ;  and  every  creditor  of  the  government, 

1  "  The  uniformity  and  certaintj^  of  the  evils  arising  from  public  credit 
and  funding  systems,  wherever  introduced,  manifest  that  we  ought  not  to 
attribute  such  evils  to  any  mismanagement  of  the  agents,  but  to  consider 
them  as  the  unavoidable  consequence  of  violating  those  laws  of  nature 
which  God  has  ordered  to  regulate  men  in  society,  which,  therefore,  can- 
not be  violated  with  impunity."  —  Le«ers  addressed  to  the  Yeomanry  of  U.  S., 
p.  23. 

2  Remarks  upon  the  iBank  of  the  U.  S.,  p.  7. 


1790.]  FUNDING    OF    THE   REVOLUTIONARY   DEBT.  33 

doubtless,  was  heartily  in  favor  of  funding.^  Others  feared 
that  it  would  cement  the  government  too  strongly  and 
change  it  into  an  aristocracy .^ 

Indeed,  the  funding  system  was  attacked  so  fiercely,  that 
Hamilton  was  induced  to  write  a  vindication  of  it.  "  It 
is  a  curious  phenomenon  in  political  history,"  he  remarks, 
"that  a  measure  which  has  elevated  the  credit  of  the 
country  from  a  state  of  absolute  prostration  to  a  state  of 
exalted  pre-eminence,  should  bring  upon  the  authors  of  it 
obloquy  and  reproach.  It  is  certainly  what,  in  the  ordi- 
nary course  of  human  affairs,  they  could  not  have  antici- 
pated." 3 

If  the  adoption  of  the  funding  system  created  some 
opposition,  it  was  very  slight  compared  with  the  joy  exjic- 
rienced  generally  by  the  people.  The  Ship  of  State  had 
safely  passed  a  dreaded  bar,  and  the  danger  of  shipwreck 
was  over. 

Within  two  years  after  enacting  the  law,  Hamilton  gave 

1  An  Inquiry  into  the  Principles  and  Tendency  of  Certain  Public  Meas- 
ures, p.  4G. 

'^  Jefferson,  who  was  a  strong  opponent  of  the  bill,  as  he  was  of  nearly 
every  measure  emanating  from  Hamilton,  says,  that  "  when  the  trial  ol 
strength  had  indicated  the  form  in  which  the  bill  would  finally  pass,  this 
being  known  within  doors  sooner  than  without,  especially  than  to  those 
wlio  were  in  distant  parts  of  the  Union,  the  base  scramble  began.  Couriers 
and  relay-horses  by  land,  and  swift  sailing-boats  by  sea,  were  flying  in  all 
directions.  Active  partners  and  agents  were  associated  and  employed  in 
every  State,  town,  and  country  neighborhood;  and  this  paper  was  bought 
up  at  five  shillings,  and  even  as  low  as  two  shillings,  in  the  pound,  before 
the  holder  knew  that  Congress  had  already  provided  for  its  redemption  at 
par.  Immense  sums  were  thus  filched  from  the  poor  and  ignorant,  and 
fortunes  accumulated  by  those  who  had  themselves  been  poor  enough  be- 
fore." —  Remarks,  p.  7.    An  Inquiry,  p.  42. 

8  Works,  vol.  vi.  p.  640. 


34         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1^90. 

an  account  of  its  operation.^  The  time  limited  by  the 
Act  for  subscribing  to  the  loan  had  expired,  and  the  secre- 
tary joyfully  announced  the  success  of  the  plan.  The  sub- 
scriptions had  amounted  to  $31,797,481.22.2  The  trustees 
of  the  sinking-fund  had  purchased  11,131,364.76  of  the 
debt,  because  it  could  be  done  very  advantageously  to 
the  government.  The  unsubscribed  residue  amounted 
to  the  sum  of  810,616,604.65.  Of  this  balance,  $6,795,- 
815.26  consisted  of  registered  debt  and  interest.  This 
portion  of  the  debt  was  chiefly  held  by  foreign  creditors, 
who  had  been  somewhat  tardy  in  sending  their  subscrip- 
tions. But  extensive  orders  received  from  them  since 
the  expiration  of  the  time  limited  for  receiving  the  debt 
furnished  ample  proof  of  their  desire  to  accept  the  pro- 
posal of  the  government.  Consequentlv,  Hamilton  recom- 
mended an  extension  of  the  time  for  subscribing  to  the 
loan,  which  was  granted. 

Another  portion  of  the  unsubscribed  indebtedness  con- 
sisted of  outstanding  or  floating  evidences  of  debt,  the 
amount  of  which  the  secretary  estimated  at  $3,697,466.14. 
The  chief  part  of  this  indebtedness  was  represented 
by  loan-office  certificates  issued  between  Sept.  1,  1777, 
and  March  1,  1778.  Many  of  the  holders  had  accepted 
the  offer  of  the  government,  and  had  exchanged  their 
certificates  for  stock ;  but  some  were  dissatisfied.  They 
maintained  that  the  hidebtedness  of  the  government  to 
them   possessed   a   greater  value   than   the   indebtedness 

1  For  history  of  the  discussion  over  this  report,  see  Hamilton's  Hist, 
of  the  Republic,  vol.  iv.  pp.  371-382. 

2  For  detailed  statement  of  subscriptions,  see  Elliot's  Funding  System, 
p.  127. 


1790.]  FUNDING   OF   THE   REVOLUTIONARY   DEBT.  35 

incurred  at  a  later  period,  and  consequently  that  they 
ought  not  to  be  compelled  to  exchange  their  old  certifi- 
cates for  new  ones,  as  the  Act  provided,  before  receiving 
interest.  Regarding  the  objection  not  wholly  ill  founded, 
Hamilton  urged  a  slight  modification  in  the  funding-law, 
hoping  to  meet  their  wishes,  and  thus  lead  them  to  sub- 
scribe. It  was  therefore  provided,  that  the  creditors 
who  had  not  subscribed  to  the  loan  should  nevertheless 
receive  the  same  interest  on  the  sum  due  to  them  as  other 
creditors  had  received  to  whom  a  similar  sum  was  due ; 
thus  placing  the  subscribing  and  the  non-subscribing 
creditors  upon  the  same  level  in  receiving  interest.  The 
period  for  subscribing  to  the  public  stock  was  extended 
several  times  ;  and  in  the  end  nearly  every  creditor  sub- 
scribed. In  1817  the  secretary  of  the  treasury  re})orted 
that  the  total  amount  of  certificates  of  all  kinds,  in  eluding- 
indents  of  interest  outstanding,  was  less  than  one  hun- 
dred and  sixty  thousand  dollars,  nearly  the  whole  of  which 
had  long  been  barred  by  statutes  of  limitation.^ 

The  amount  subscribed  in  the  debts  of  the  States, 
reported  by  Hamilton  in  February,  1793,  was  $17,072,- 
334.39.  This  was  smaller  than  the  amount  assumed  by 
84,427,665.61.  Several  reasons  existed  for  not  subscrib- 
ing the  balance.  The  first  was,  the  sum  assumed  with 
respect  to  certain  States  exceeded  the  actual  amount 
of  their  debts ,  secondl^^  in  many  instances  a  part  of 
the  existing  debt  was  in  such  a  form  as  to  exclude  it 
without  violating  the  law;  lastly,  ignorance  or  forge tful- 
ness  of  the  time  limited  for  receiving  subscriptions. 

1  The  exact  amount  reported  was  $159,013.56.  Crawford's  communica- 
tion to  the  House,  Jan.  9,  1817,  3  Finance,  p.  150. 


36         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1790. 

Several  of  the  States  were  desirous  of  having  the  time 
extended  for  receiving  the  debts  included  within  the 
terms  of  the  law,  and  with  this  desire  Congress  will- 
ingly complied.  But  when  an  effort  was  made  to 
stretch  the  scope  of  the  law  far  enough  to  include  all 
the  indebtedness  incurred  by  the  States  for  the  common 
defence,  instead  of  adhering  to  the  arbitrary  sum  of 
121,500,000,  the  majority  of  Congress  would  not  consent. 
Hamilton  urged  the  assumption  of  the  entire  amount 
with  great  force,  and  his  recommendation  was  lost  in 
the  House  by  only  a  few  votes. 

Obvious  justice  required  the  assumption  of  all  the 
debts  thus  contracted.  Congress,  under  the  Confedera- 
tion, had  repeatedly  promised  to  do  full  justice  to  all 
the  creditors  and  States ;  and  their  successors  had  no 
right  to  repudiate  the  promise.  The  assumption  of  the 
claims  of  State  creditors,  to  whom  compensation  was  due 
for  their  efforts  in  aiding  the  common  cause  against  Great 
Britain,  was  not  so  much  an  act  of  expediency  as  an 
act  of  open  and  express  obligation.  There  was  no  honest 
way  of  escaping  the  fulfilment  of  it.  Moreover,  the 
States  had  granted  the  exclusive  right  to  the  government 
of  collecting  a  revenue  on  imports,  which  was  the  richest 
source  of  public  revenue.  When  the  States  relinquished 
the  right  of  levying  this  tax,  they  expected  that  the 
government  would  relieve  them  from  their  obligations 
incurred  for  the  general  welfare.  To  appropriate  the 
richest  fountains  of  taxation  belonging  to  the  States, 
and  to  refuse  the  assumption  of  their  war  obligations, 
was  harsh  treatment,  and  just  ground  for  resentment. 

When   this   portion   of    the    public    indebtedness   was 


1790.J         FUNDING   OF   THE   REVOLU nONAEY   DEBT. 


37 


finally  adjusted,  the  amount  assumed  for  each  State  was 
as  follows:  — 


New  Hampshire 
Rhode  Island 
Massachusetts 
Connecticut  . 
New  York 
New  Jersey   . 
Pennsylvania 
Delaware  .     . 


$282,595  51 

200,000  00 

3,981,733  05 

1,600,000  00 

1,183,716  69 

695,202  70 

777,983  48 

59,161  65 

Maryland.     .     .     . 
Virginia    and    Ken- 
tucky    .     . 
North  Carolina 
South  Carolina 
Georgia     .     . 

Total      . 


$517,491  08 

2,934,416  00 

1,793,803  85 

3,999,651  73 

246,030  73 

.8,271,786  47 


Thus  the  amount  assumed  in  the  beginning  proved  suffi- 
cient to  cover  the  indebtedness  of  all  the  States,  except 
Rhode  Island  and  Connecticut,  under  the  regulations 
adopted  for  the  admission  of  debts  in  favor  of  the 
States. 

In  criticising  the  funding-system,  Gallatin  displayed 
greater  acuteness  than  any  other  critic  of  the  time. 
"  Considering  the  assumption  of  State  debts  as  intended 
solely  for  the  purpose  of  doing  equal  justice  to  the 
several  States  by  equalizing  their  accounts,"  he  says,  "it 
may  be  demonstrated,  that  had  Congress  waited  until  the 
settlement  of  accounts  had  taken  place,  before  any  State 
debts  were  assumed,  they  might  have  produced  the  same 
effect  by  an  assumption,  in  favor  of  the  creditor  States, 
to  the  amount  of  fll, 609,259.69,  which  has  been  pro- 
duced by  the  premature  assumption  of  $21,789,370.47  ;i 
which  have  been  actually  assumed  or  funded  in  favor 
of  the  several  States.     That  is  to  say,  that  the  accounts 

1  This  sum  was  composed  of  the  amount  finally  assumed,  $18,271,786.47, 
which  the  States  had  advanced,  united  to  a  balance  of  $3,517,584  due  to  the 
States  in  their  account  with  the  government  for  money  advanced.  See 
No.  XV.  to  Gallatin's  Sketch  of  the  Finances. 


38         FINANCIAL  HISTOKY  OF  THE  UNITED  STATES.       [1790. 

of  the  Union  with  the  individual  States  might  have  been 
placed  in  the  same  relative  situation  in  which  they  now 
stand  by  assuming  $10,180,110.78  less  than  has  been  as- 
sumed." 1  Such  an  adjustment  would  have  equalized  the 
burdens  of  the  States  among  each  other ;  yet  they  would 
have  been  required  to  pay  more  than  eleven  millions  to 
their  creditors,  which  many  believed  it  was  the  plain  duty 
of  the  government  to  pay,  having  appropriated  the  best 
sources  of  revenue  formerly  possessed  by  the  States. 
Gallatin  did  not  go  so  far  as  to  maintain  that  such  an 
adjustment  ought  to  have  been  made,  though  perhaps 
this  inference  may  be  fairly  drawn  from  his  writings. 

His  next  criticism  is  more  weighty,  and  cannot  be  easily 
shaken.  "Even  the  warmest  supporters  of  the  State 
debts,"  he  says,  "  on  its  most  enlarged  scale ;  even  those 
who  think,  that,  both  on  the  score  of  justice  and  in  order 
to  relieve  them  from  a  heavy  burden,  it  was  wise  and 
politic  to  have  assumed  the  whole  of  the  sum  which  was 
actually  assumed  in  favor  of  the  creditor  States,  —  even 
they  must  acknowledge  that  an  assumption  made  at 
random  before  the  accounts  were  settled,  rendered  it 
unavoidable  to  assume  debts  in  favor  of  States  which 
were,  in  fact,  already  indebted  to  the  Union,  and  that 
the  consequence  has  been  such  as  might  have  been  fore- 
seen. Thus  near  $1,200,000  were  assumed  for  the  State 
of  New  York,  which,  when  the  accounts  were  finally  set- 
tled, was  found  to  be  indebted  to  the  Union  to  the  amount 
of  more  than  two  millions.  It  is  self-evident,"  he  adds, 
"  that  the  debts  thus  assumed  for  debtor  States  were  not 
due  by  the  United  States,  that  they  are  a  debt  unneces- 

1  Views  of  the  Public  Debt,  p.  24. 


1790.] 


FUNDING    OF   THE   REVOLUTIONARY   DEBT. 


39 


sarily  constituted  and  created  by  the  present  government. 
On  the  most  superficial  view  of  the  subject,  it  appears 
that  $2,069,565.71  have  been  assumed  for  debtor  States, 
to  the  manifest  injury  of  the  other  States."  ^  A  twofold 
reason  existed  for  pressing  the  assumption  of  the  State 
debts  before  there  was  a  settlement  of  the  accounts  be- 
tween the  States  and  the  government.  In  the  first  place, 
the  States  which  were  burdened  with  the  heaviest  debts 
were  impatient  for  an  early  settlement,  "apprehensive," 
as  Gallatin  says,  "either  that  they  might  not  be  found 
creditor  to  so  large  an  amount  as  the  sums  assumed  for 
them,  or  that,  if  they  did  not  obtain  immediate  relief, 
justice  might  afterwards  be  denied  to  them."  The  other 
reason  was  the  strengthening  of  the  government  by  ren- 
dering all  the  creditors  of  the  several  States  dependent 
on  the  Union. 

In  regard  to  the  debts  between  the  States  and  the  gov- 
ernment, the  time  for  presenting  them  on  either  side  was 
continued  ;  and  in  December,  1793,  the  commissioners  made 
their  final  report.  In  accordance  with  the  principles 
adopted  by  Congress  for  adjusting  this  class  of  accounts, 
the  States  were  debited  and  credited  as  follows :  — 


CREDITOR    STATES. 

DEBTOR   STATES. 

New  Hampshire 

$75,055 

New  York   .     .     . 

.     $2,074,846 

Massachusetts     .     . 

.     1,248,801 

Pennsylvania   .     . 

76,709 

Rhode  Island      .     . 

299,611 

Delaware     .     .     . 

612,428 

Connecticut  .     .     . 

619,121 

Maryland     .     .     . 

151,640 

New  Jersey   .     .     . 

49,030 

Virginia       .     .     . 

100,879 

South  Carolina  .     . 

.     1,205,978 

North  Carolina     . 

501,082 

Georgia     .... 

19,988 

Total    .     .     . 

.     13,517,584 

Total      .     .     . 

$3,517,584 

1  Views 

>,  p.  25. 

40         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1790. 

After  making  this  report,  Congress  enacted  that  inter- 
est on  the  balances  due  to  the  creditor  States  should  be 
allowed  from  the  last  day  of  December,  1789,  for  the  four 
succeeding  years,  at  the  rate  of  four  per  cent  per  annum, 
"and  that  the  amount  of  such  interest  be  placed  to  the 
credit  of  the  State  to  which  the  same  shall  be  found  due 
upon  the  books  of  the  treasury  of  the  United  States,  and 
shall  bear  an  interest  of  three  per  centum  per  annum  " 
after  the  last  day  of  December,  1794.1  With  respect  to 
the  balances.  Congress  had  already  provided  for  funding 
them,  within  twelve  months  from  the  time  they  were 
ascertained,  "  upon  the  same  terms  with  the  other  part  of 
the  domestic  debt  of  the  United  States."  ^ 

Thus  the  government  faithfully  performed  its  duty 
toward  the  States,  and  funded  the  balances  due  to  them , 
but  they,  on  the  other  hand,  were  not  so  faithful.  They 
neglected  almost  totally  to  do  any  thing.  The  govern- 
ment was  powerless  to  collect  the  balances  in  its  favor. 
Had  the  government  delayed  to  pay  to  the  States  the 
amount  assumed,  it  might  have  retained  enough  to  bal- 
ance every  account.  It  is  true  that  the  indebtedness  on 
the  one  side  was  somewhat  different  from  that  on  the 
other.  Yet  it  may  be  questioned  whether  such  a  course 
by  the  government  would  not  have  been  strictly  just. 
Unwilling  to  pay,  the  government  sought  to  coax  the 
States  by  making  a  new  offer.  If  they  would  build  for- 
tifications, and  make  other  public  improvements,  the 
amount  expended  would  be  credited  to  them  against  the 

1  Act,  May  31, 1794,  3  Cong.,  first  session,  chap.  37. 

2  Act,  Aug  5,  1790,  1  Cong.,  second  session,  chap.  38,  sect.  7  :  in  other 
■words,  should  he  funded  like  the  second  portion  of  the  public  debt. 


1790.]  FUNDING   OF   THE   REVOLUTIONARY   DEBT.  41 

balances  clue  to  the  government.  A  little  over  $200,000 
was  spent  by  New  York  in  fortifying  its  chief  harbor, 
which  was  duly  credited.  The  other  debtor  States  did 
nothing,  and  finally  all  were  relieved  of  their  indebted- 
ness to  the  government  by  Congress. 

Thus  the  proposals  of  the  government  had  been  ac- 
cepted. A  more  economical  system  might  have  been 
devised ;  but,  crude  as  this  was,  the  hope  of  saving  the 
national  life  was  immensely  strengthened,  while  older 
nations  beheld  our  exhibition  of  creative  political  energy 
with  wonder.  The  darkest  cloud  in  the  firmament  of  the 
Union  had  disappeared.  The  restoration  of  the  public 
credit  was  the  beginning  of  a  new  era.  The  long,  dreary 
period  of  neglected  and  broken  promises  was  past. 


42        FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1790. 


CHAPTER  IV. 

PAYMENT   OF   THE   EEVOLUTIONARY  DEBT. 

Hamilton  was  no  believer  in  the  doctrine  that  a  na- 
tional debt  is  a  national  blessing.  As  soon  as  the  debt 
was  funded,  he  began  to  mature  measures  for  paying  it. 
The  spirit  of  repudiation  was  then  unknown  ;  and  the 
people  generally  favored  the  adoption  of  such  a  policy  as 
would  effectually  remove  the  burden  of  public  debt  at  no 
distant  day. 

B}"-  the  funding-law  $600,000  of  annual  revenue  were 
reserved  for  paying  the  expenses  of  the  government ,  and 
the  residue  of  the  income  arising  from  duties  on  imports 
and  tonnage  was  appropriated  to  paying  the  interest 
on  foreign  loans,  and  on  future  loans  obtained  for  dis- 
charging the  interest  on  prior  foreign  ones,  and  also  the 
l)rincipal.  The  income  thus  accruing  was  to  continue 
appropriated  in  the  manner  prescribed,  until  all  the  loans 
made  by  virtue  of  that  law  were  fully  satisfied.^ 

1  There  was  a  writer  who  proposed  that  the  debt  should  be  paid  "  with- 
out oppressing  the  citizens,"  simply  by  taxing  the  vices  prevailing  at  that 
time,  the  chief  of  which  were  perjury,  drunkenness,  blaspliemj-,  slander, 
and  infidelity.  "  Would  it  not,  then,  he  worthy  of  our  consideration,  and 
that  of  the  different  Legislatures,  to  inquire  whether  a  moderate  tax  upon 
every  particular  vice  would  not  be  more  conducive  to  our  welfare  than 
tlie  cramping  of  our  foreign  and  domestic  trade?    Such  a  tax  must,  of 


1790.]         PAYMENT   OF   THE   REVOLUTIONARY   DEBT.  43 

As  another  loan  must  be  niade  to  pay  a  portion  of  the 
foreign  debt  then  due,  and  the  arrears  of  interest  on  the 
same,  the  President  was  authorized  to  borrow  not  more 
than  $12,000,000  to  discharge  those  obligations,  and  to 
pay  the  foreign  debt,  if  this  could  be  advantageously 
done.  He  was  clothed  with  the  broad  authority  to  make 
such  other  contracts  respecting  the  debt  as  should  be 
for  the  interest  of  the  States.  But  any  loan  made  by 
him  must  be  payable  within  fifteen  years. 

By  the  same  law,  the  public  revenues  derived  from 
imports  and  tonnage  were  "  pledged  and  appropriated  for 
the  payment  of  the  interest  on  the  stock  "  issued  by  the 
government,  except  the  portions  set  apart  for  the  pur- 
pose previously  described.  That  such  revenues  might  be 
"inviolably  applied,"  and  never  "diverted  to  auy  other 
purpose,"  the  secretary  of  the  treasury  was  required  to 
keep  an  account  of  "  the  receipts  and  disposition  thereof, 
separate  and  distinct  from  the  product  of  any  other  duties, 
imports,  excises,  and  taxes."  The  faith  of  the  government 
was  also  pledged  to  provide  and  appropriate  such  addi- 

necessity,  yield  a  vast  revenue,  and  prove  a  most  infallible  scheme  for  our 
prosperity." 

The  writer  then  proceeds  to  show  how  much  might  be  collected  from 
a  moderate  tax  on  perjury,  which  he  took  "  to  be  the  most  important  and 
particular  staple  vice."  Drunkenness  "  I  would  only  tax  sixpence,"  "  as 
it  might  be  prejudicial  to  trade,  as  well  as  the  revenue,  to  discourage  it." 
"  Swearing  would  be  a  most  universal  benefit  towards  augmenting  these 
funds;"  though  he  thought  that  military  men  would  object,  and  claim  an 
exemption  from  it.  "Conjugal  infidelity,  as  the  world  goes  at  present, 
would  furnish  the  public  with  a  large  sum,  even  at  a  very  moderate  tax; 
for  it  is  now  made  an  essential  part  of  the  polite  gentleman's  character, 
and  he  that  has  prevailed  on  the  greatest  number  proportionally  rises  in 
reputation."  Luxuries  were  also  to  be  heavily  taxed,  but  he  did  not 
favor  the  taxation  of  bachelors.  —  Am,  Museum,  vol.  vi.  p.  286. 


44        FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1790 

tional  and  permanent  funds'as  might  be  required  for  pay- 
ing the  interest  on  its  stock.  For  the  payment  of  the 
principal  of  the  public  indebtedness,  the  proceeds  of  the 
sales  of  the  public  lands  were  pledged.^ 

Subsequently,  during  the  same  session,  a  second  reve- 
nue Act  was  passed,  in  which  Congress  enacted  that  the 
several  duties  imposed  thereby  should  be  collected  and 
paid,  until  the  debts  and  purposes  for  which  they  were 
pledged  and  appropriated  were  fully  discharged ;  the  gov- 
ernment, however,  reserving  the  right  to  substitute  other 
taxes  of  equal  value.  Congress  further  enacted  that  all 
surplus  revenue  should  be  applied  to  the  purchase  of  the 
debt  of  the  United  States,  "at  its  market-jDrice,  if  not 
exceeding  the  par  or  true  value  thereof,"  and  that  the 
purchase  should  be  made  under  the  direction  of  the  Presi- 
dent, the  chief  justice,  the  secretary  of  state,  the  secre- 
tary of  the  treasury,  and  the  attorney-general.  Onl}^  a 
single  specific  direction  was  imposed  in  making  purchases ; 
namely,  they  were  to  be  made  openly,  and  with  due  re- 
gard to  the  equal  benefit  of  the  several  States.  B}^  the 
same  Act  the  President  was  authorized  to  borrow  12,000,- 
000,  "at  an  interest  not  exceeding  five  per  cent,"  for  the 
purpose  of  purchasing  the  domestic  debt.  The  public 
debt  thus  bought  by  the  government  was  to  be  regarded 
as  bearing  interest,  just  as  though  it  were  owned  by  an 
individual ;  and  a  portion,  "  not  exceeding  the  rate  of 
eight  per  cent  per  annum  on  account  both  of  principal 
and  interest,"  was  to  be  applied  "towards  the  repayment 
of  the  two  millions  of  dollars  so  to  be  borrowed."  ^     The 

1  Act,  Aug.  4, 1790,  1  Cong.,  second  session,  chap.  34,  sects.  1,  2,  20-22. 

2  Act,  Aug.  12,  1790,  1  Cong.,  second  session,  cliap.  47. 


1792.]         PAYMENT   OF   THE   REVOLUTIONARY   DEBT.  45 

object  of  providing  the  means  to  buy  the  debt  so  early, 
even  though  obtainable  only  by  borrowing,  was  to  enhance 
the  value  of  the  debt,  and  restore  the  credit  of  the  nation. ^ 
More  complete  regulations  were  subsequently  adopted 
for  redeeming  the  public  debt.  The  first  of  these  was 
in  May,  1792.2     The  president  of  the  Senate,  the   chief' 

1  Hamilton,  in  his  Report  on  Public  Credit  (Jan.  14,  1790),  remarked, 
"This  measure,  which  would  be,  in  the  opinion  of  the  secretary,  highly 
dishonorable  to  the  government  if  it  were  to  precede  a  provision  for  fund- 
ing the  debt,  would  become  altogether  unexceptionable  after  that  had  been 
made.  Its  effect  would  be  in  favor  of  the  public  creditors,  as  it  would  tend 
to  raise  the  value  of  stock;  and  all  the  difference  between  its  true  value 
and  the  actual  price  would  be  so  much  clear  gain  to  the  public.  The  pay- 
ment of  foreign  interest  on  the  capital  to  be  borrowed  for  this  purpose, 
should  that  be  a  necessary  consequence,  would  not,  in  the  judgment  of  the 
secretary,  be  a  good  objection  to  the  measure.  The  saving  by  the  operation 
would  be  itself  a  sufficient  indemnity;  and  the  employment  of  that  capi- 
tal, in  a  country  situated  like  this,  would  much  more  than  compensate  for 
it.  Besides,  if  the  government  does  not  undertake  this  operation,  the  same 
inconvenience  which  the  objection  in  question  supposes,  would  happen  in 
another  way,  with  a  circumstance  of  aggravation.  As  long,  at  least,  as  the 
debt  shall  continue  below  its  proper  value,  it  will  be  an  object  of  specula- 
tion to  foreigners,  who  will  not  only  receive  the  interest  upon  what  they 
purchase,  and  remit  it  abroad,  as  in  the  case  of  the  loan,  but  will  reap  the 
additional  profit  of  the  difference  in  value.  By  the  government's  entering 
into  competition  with  them,  it  will  not  only  reap  a  part  of  the  profit  itself, 
but  will  contract  the  extent,  and  lessen  the  extra  profit,  of  foreign  pur- 
chasers. That  competition  will  accelerate  the  rise  of  stock;  and  whatever 
greater  rate  this  obliges  foreigners  to  pay  for  what  they  purchase  is  so 
much  clear  saving  to  the  nation.  In  the  opinion  of  the  secretary,  and  con- 
trary to  an  idea  which  is  not  without  patrons,  it  ought  to  be  the  policy  of 
the  government  to  raise  the  value  of  stock  to  its  true  standard  as  fast  as 
possible.  When  it  arrives  to  that  point,  foreign  speculations  (which  till 
then  must  be  deemed  pernicious,  further  than  as  they  serve  to  bring  it  to 
that  point)  will  become  beneficial.  Their  money,  laid  out  in  this  country 
upon  our  agriculture,  commerce,  and  manufactures,  will  produce  much 
more  to  us  than  the  income  they  will  receive  from  it." 

2  2  Cong.,  first  session,  chap.  38. 


46         riNAXCIAL  HISTORY  OF  THE  UNITED  STATES.       [1792. 

justice,  and  the  several  members  of  the  cabinet,  were 
appointed  commissioners  to  purchase  the  public  debt  at 
its  market-price,  if  not  exceeding  the  par  or  true  value  ; 
and  the  interest  on  any  portion  redeemed,  and  the  sur- 
plus of  any  sum  appropriated  for  the  payment  of  interest, 
were  "  appropriated  and  pledged  firmly  and  inviolably " 
for  the  purchase  and  redemption  of  the  debt.  The  income 
thus  derived  was  to  be  applied,  under  the  direction  of 
the  commissioners,  with  the  approval  of  the  President, 
in  the  following  manner :  first,  to  the  purchase  of  the 
several  species  of  stock  at  their  respective  market-prices, 
not  exceeding  the  par  or  true  value,  and  as  nearly  as 
might  be  in  equal  proportions,  until  the  annual  amount 
of  such  funds,  together  with  any  other  provisions  which 
might  be  made  by  law,  should  be  equal  to  two  per  cent 
of  the  whole  amount  of  the  outstanding  funded  stock, 
bearing  a  present  interest  of  six  per  cent  ^  secondly,  to 
the  redemption  of  the  last-mentioned  stock,  imtil  the 
whole  amount  should  be  redeemed ;  and  lastly,  after  such 
redemption,  to  the  purchase,  at  its  market-value,  of  any 
other  stock.  All  future  purchases  were  to  be  at  the  low- 
est price  in  open  market,  or  by  receiving  sealed  proposals, 
which  were  to  be  opened  by  the  commissioners.  The  Act 
closed  by  requiring  them  to  render  a  quarterly  account 
for  settlement,  like  any  other  public  account,  and  also  a 
full  and  exact  report  of  their  proceedings  to  Congress, 
within  the  first  fourteen  days  of  each  session. 

Congress  neglected  no  longer  to  provide  for  paying  the 
foreign  officers  who  had  served  in  the  armies  of  the  United 
States  during  the  Revolution.  The  amount  due,  with  the 
arrears  of  interest  to  the  close  of  1791,  was  $220,646.81. 


1792.J         PAYMENT    OF   THE   EEVOLUTIOXARY  DEBT.  47 

In  1784  the  Congress  of  the  Confederation  directed  that 
interest  should  be  annually  paid  to  them.  The  20th  of 
August,  1788,  the  payment  of  interest  was  ordered  to  the 
end  of  that  year.  Then  the  government  ceased  to  pay, 
and  Hamilton  suggested  the  expediency  of  discharging 
the  entire  debt,  for  the  reason  that  it  bore  six  per  cent 
interest,  payable  abroad,  and  something  could  be  saved  by 
discharging  it.  He  also  said  there  were  other  reasons, 
"  of  a  nature  both  weighty  and  delicate,  and  too  obvious 
to  need  a  specification."  Accordingly,  the  President  was 
authorized  to  discharge  the  principal  and  interest  of  this 
debt  from  the  twelve-million  loan  previously  described,  if 
the  whole  amount  were  not  needed  to  fulfil  the  purpose 
specified  in  the  Act  authorizing  it.^  The  debt  was  not 
entirely  paid  until  1828. 

These  measures  did  not  go  far  in  providing  effectively 
for  the  discharge  of  the  funded  indebtedness.  Congress 
directed  Hamilton  to  report  a  plan  for  redeeming  that 
portion  of  the  public  debt  which  the  government  had 
reserved  the  right  to  redeem  ;  and  in  December  he  pre- 
sented to  the  House  his  views  on  the  subject.  The  sur- 
plus of  the  present  revenues,  he  thought,  should  be  applied 
to  such  casual  exigencies  as  might  from  time  to  time 
occur,  to  occasional  purchases  of  the  debt,  to  the  payment 
of  interest  on  any  balances  which  might  be  found  due  to 
particular  States  on  the  general  settlement  of  accounts, 
and  finally  to  the  payment  of  interest  on  the  deferred 
part  of  the  debt  when  the  period  arrived.  Relinquish- 
ing the  idea  of  an  immediate  application  of  the  present 
revenues  to  the  object  in  view,  Hamilton  proceeded  to 

1  2  Cong.,  first  session,  chap.  38,  sect.  5. 


48         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      <1798. 

consider  what  other  modes  were  open  for  adoption  by 
Congress. 

Loans  from  time  to  time,  equal  to  the  sums  annually 
redeemable,  and  bottomed  on  the  same  revenues  as  were 
then  appropriated  to  pay  the  interest  thereon,  was  an 
expedient  which  he  declared  might  be  advantageously 
employed.  As  money  could  probably  be  borrowed  at 
lower  rates,  a  material  saving  would  result :  this  expedi- 
ent, therefore,  should  not  be  neglected. 

But  Hamilton  was  satisfied  with  no  such  slow  process 
of  discliarging  the  debt.  He  did  not  believe  in  binding 
it  around  posterity.  Accordingly,  he  advised  the  estab- 
lishment of  additional  revenues.  Assuming  these  as  the 
basis  of  a  plan  of  redemption,  he  proceeds  to  inquire 
in  what  way  they  should  be  enlarged,  and  offers  three 
propositions :  — 

1.  Shall  a  revenue  be  immediately  constituted,  equal  to 
the  full  sum  which  may  at  present  be  redeemed,  according 
to  the  terms  of  the  contract? 

2.  Shall  a  revenue  be  immediately  constituted,  equal 
only  to  the  interest  of  the  sum  to  be  redeemed  in  each 
year,  coupling  with  this  operation  an  annual  loan  com- 
mensurate with  such  sum  ?  or, 

3.  Shall  a  revenue  be  constituted  each  year,  so  much 
exceeding  the  interest  of  the  sum  to  be  redeemed  as  to 
be  sufficient,  within  a  short,  definite  term  of  time,  to 
discharge  the  principal  itself;  coupling  with  this  opera- 
tion, also,  an  annual  loan  equal  to  the  sum  to  be  annually 
redeemed,  and  appropriating  the  revenue  created  to  its 
discharge  within  the  term  which  shall  have  been  pre- 
determined? 


1793.]         PAYMENT    OF    THE    REVOLUTIOXARY    DEBT.  49 

The  last  inquiry  contained  the  plan  which  accorded 
most  perfectly  with  the  view  of  the  secretary.  In  apply- 
ing it,  he  maintained  that  two  points  ought  to  be  ac- 
complished :  first,  the  complete  discharge  of  the  sums 
annually  redeemable  within  the  period  prefixed,  and  the 
reimbursement  within  the  same  period  of  all  auxiliary 
loans  that  might  be  made  for  that  purpose ;  secondly, 
the  creation,  by  the  expiration  of  that  period,  of  "  a  clear, 
annual  fund,  competent  to  the  future  redemption  of  the 
debt  to  the  extent  of  the  right  reserved."  ^ 

The  period  to  which  the  plan  ought  to  refer,  so  he 
suggested,  was  the  1st  of  January,  1802,  when  the  first 
payment  on  account  of  the  principal  of  the  deferred  debt 
could  be  rightfully  made.  Hamilton  then  shows  how 
the  "  annual  fund "  might  be  raised  for  each  year  until 
1802 ;   but  Congress  did  not  see  fit  to  adopt  the  plan. 

1  "Works,  vol.  iii.  p.  338.  Premising  that  the  sum  to  be  redeemed  the 
first  year,  of  the  six-per-cent  stock  bearing  a  present  interest,  was  com- 
puted at  $^550,000,  Hamilton  proposed  to  constitute  an  annual  fund  at  that 
session  equal  to  $103,199.06,  which  should  begin  to  accrue  from  the  1st  of 
January,  1793.  "  Let  the  sum  of  $550,000  be  borrowed  upon  the  credit  of 
this  annuity,  reimb\irsabl.e  within  five  years,  that  is,  by  the  1st  of  January, 
1799;  the  sum  to  be  borrowed  to  be  applied,  on  the  1st  of  January,  1794, 
to  the  first  payment  on  account  of  the  principal  of  the  debt.  The  proposed 
annuity  will  reimburse  the  sum  borrowed,  with  interest,  by  the  1st  of 
January,  1799,  and  will  thenceforth  be  free  for  any  further  application." 
Hamilton  proposed  to  raise  the  means  for  constituting  this  first  annuity 
from  two  sources  :  viz.,  the  annual  surplus  of  the  dividend  on  the  stock 
held  by  the  government  in  the  Bank  of  the  United  States  beyond  the  in- 
terest to  be  paid  out  upon  the  money  borrowed  to  pay  for  the  same,  which 
surplus  was  estimated  at  $60,000;  and  a  tax  on  horses  kept  for  riding,  or 
drawing  carriages.  The  product  of  this  tax  was  estimated  at  $43,199.06. 
Hamilton  proceeds  to  fix  the  sums  to  be  redeemed  each  year,  and  what 
annuities  are  required  to  be  raised,  in  a  manner  similar  to  the  process 
above  described. 


50         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1795. 

It  was  doubtless  too  elaborate  for  Congress:  indeed,  it 
was  a  kind  of  Eleiisinian  mystery,  lacking  simplicity  and 
originality.  It  was  strongly  flavored  with  the  English 
ideas  of  finance  prevailing  at  that  time,  and  which  long 
since  were  thrown  away. 

In  his  final  report  on  the  subject,  Hamilton  sets  forth 
the  steps  already  taken  by  Congress  for  redeeming  the 
debt,  and  offers  some  other  suggestions,  which  were  em- 
bodied in  a  law  passed  early  in  1795.^ 

By  this  enactment  the  commissioners  of  the  sinking- 
fund  were  empowered,  with  the  approval  of  the  President, 
to  borrow  a  sum  not  exceeding  one  million  dollars  annu- 
ally, to  pay  the  interest  accruing  on  the  public  debt,  in 
anticipation  of  the  revenue  appropriated  for  that  purpose. 
A  loan  was  to  be  opened  at  the  treasury  for  raising 
money  to  discharge  the  foreign  debt.  All  duties  on  mer- 
chandise and  the  tonnage  of  vessels,  set  free  by  the  fore- 
going operations,  were  pledged  for  the  payment  of  the 
interest  and  principal  of  the  debt.  Some  duties  which 
had  been  temporarily  laid  were  to  be  permanent.  The 
sinking-fund  was  enlarged,  and  the  powers  of  the  sinking- 
fund  commissioners  were  extended,  and  more  minutely 
defined. 

Two  per  cent  of  the  principal  of  the  six-per-cent 
stocks  was  to  be  paid  annually,  and  a  similar  payment, 
after  the  year  1801,  of  the  principal  of  the  stock,  which 
at  that  time  would  begin  to  bear  interest.  All  priorities 
previously  established  in  the  appropriations  for  interest 
on  the  public  debt  were  to  cease  after  the  year  1796,  with 
respect   to   all   creditors   not  expressing  their  dissent  in 

1  Works,  vol.  iii.  p.  456.    Act,  March  31,  3  Cong.,  second  session,  chap.  45. 


ITOG.]         PAYMENT    OF    THE   REVOLUTIONARY    DEBT.  51 

writing  before  that  time.  The  law  also  provided  that 
all  loan-office  and  final  certificates  and  indents  of  interest 
which  should  be  outstanding  the  1st  of  January,  1797, 
might  be  presented  at  the  office  of  the  auditor  of  the 
treasury  for  the  purpose  of  exchanging  them  for  other 
certificates  of  equivalent  value  and  tenor,  or  for  regis- 
tering them ;  in  which  case,  of  course,  they  were  to  be 
returned.  If  the  holders  did  neither  thing,  they  were  to 
be  barred  from  "  settlement  of  allowance."'  Unexpended 
appropriations,  after  the  period  of  two  years,  except  those 
for  the  payment  of  interest  on  the  funded  debt,  or  for 
the  payment  of  the  interest  or  principal  of  any  loan, 
were  to  form  a  new  account,  which  was  to  be  called 
"  the  surplus  fund." 

Such  were  the  leading  provisions  of  the  last  of  a  series 
of  fourteen  Acts  relating  to  the  funding  and  redemption 
of  the  public  debt,  which  were  passed  during  Hamilton's 
administration  of  the  treasury  departir.ent.  The  next 
year  more  specific  regulations  were  established  for  pay- 
ing the  interest  and  principal  of  the  debt.  Dividends 
were  to  be  paid  the  last  days  of  March,  June,  and  Sep- 
tember, until  1818,  "  at  the  rate  of  one  and  one-half  per 
centum  upon  the  original  capital,"  and  a  final  dividend 
for  the  balance,  on  the  last  day  of  that  year. 

The  deferred  stock  was  to  be  paid  in  the  same  manner. 
The  time  for  paying  dividends  thereon  was  to  begin  in 
1801,  and  end  in  1824.  A  similar  provision  was  made 
for  paying  the  balance  due  to  the  States.^ 

When  Gallatin  succeeded  to  the  treasuryship,  another 
law  was  enacted,  relating  to  the  payment  of  the  debt,  which 

1  Act,  April  28, 1796,  4  CoDg.,  first  session,  chap.  16. 


52         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1802. 

is  the  last  requiring  extended  consideration.  Nearly  ten 
years  had  passed  since  the  commencement  of  the  funding 
operations,  and  the  defects  in  the  measures  adopted  were 
clearly  seen. 

The  Committee  of  Ways  and  Means,  of  which  Randolph 
was  chairman,  declared  that  no  effectual  provision  for  the 
final  redemption  "of  the  whole  present  debt  of  the  United 
States  did  at  that  time  exist.  To  the  measures  which  had 
already  been  adopted,  their  complexity  formed  an  objection 
inferior  only  to  their  insufficiency."  These  criticisms, 
though  containing  some  truth,  were  colored  by  party 
temper.  Another  political  party  had  obtained  control 
of  the  government,  and  the  leaders  manifested  a  strong 
disposition  to  shrivel  the  importance  of  the  work  of  theii 
opponents.  Randolph's  report  was  the  product  of  a  letter 
written  by  Gallatin,  in  whom  was  embodied  most  of  the 
financial  wisdom  possessed  by  his  party. 

Gallatin  declared  that  the  appropriations  made  sub- 
sequently to  the  3d  of  March,  1795,  which  were  not 
vested  in  the  commissioners  of  the  sinking-fund,  did  not 
constitute  a  contract  with  the  creditors,  and  consequently 
were  not  permanently  inviolable.  Like  any  other  ordi- 
nary law,  it  might  be  repealed  without  a  breach  of  faith, 
and  afforded  no  security,  therefore,  for  the  eventual 
discharge  of  the  debt.  The  surpluses  of  the  revenue, 
though  vested  in  the  commissioners  of  the  sinking-fund, 
were  substantially  liable  to  the  same  objection ;  for  as 
only  the  surplus  of  revenue,  beyond  all  the  appropriations 
charged  to  it,  was  applicable  to  the  payment  of  the  debt, 
nothing  more  was  necessary  to  defeat  that  provision  than 
large  appropriations  for  other  objects. 


1802.]         PAYMENT   OF   THE   REVOLUTIONARY   DEBT.  53 

Not  only  were  the  provisions  relating  to  the  payment 
of  the  public  debt  difficult  to  be  executed,  uncertain 
in  their  amount,  dependent  on  the  will  of  the  Legisla- 
ture, and  inadequate  to  the  object,  but  it  was  ultimately 
a  matter  of  discretion  with  the  secretary  of  the  treasury 
to  carry  them  into  effect,  even  in  the  case  of  surpluses 
vested  in  the  sinking-fund. 

Gallatin  then  sets  forth  in  the  clearest  light  how  a 
secretary  who  was  so  disposed  might  defeat,  under  the 
existing  laws,  the  intention  of  Congress  altogether,  with 
respect  to  paying  the  public  debt.  "  All  payments  must 
be  made  out  of  moneys  in  the  treasury.  An  appropria- 
tion authorizing  and  directing  the  annual  payment  of  a 
certain  sum,  as  in  the  case  of  the  eight-per-cent  annuity 
on  the  six-per-cent  and  defined  stocks,  must  be  satisfied 
each  year  out  of  those  moneys.  An  appropriation  des- 
ignating for  a  certain  object  all  moneys  arising  from  a 
certain  source,  as  in  the  case  of  the  proceeds  of  the 
Western  lands,  and  of  old  debts,  is  equally  efficient,  as 
those  monej's  cannot  be  applied  to  any  other  object. 
But  the  other  appropriations  for  the  redemption  of  tlie 
public  debt  are  neither  accompanied  with  an  imperative 
clause  directing  their  application,  nor  bottomed  on  a 
distinct  source  of  revenue^  solely  applicable  to  that  ob- 
ject; and  they  rest,  in  common  with  all  the  apjjropri- 
ations  for  the  civil,  military,  and  naval  expenses  of 
government,  partly  on  monej'S  in  the  treasury,  and  prin- 
cipally on  the  outstanding  uncollected  revenue.  The 
aggregate  of  all  these  several  kinds  of  appropriations 
uniformly  exceeds  the  moneys  in  the  treasury .;  and  it 
1  Tbe  additioual  duties  of  1797  excepted. 


54         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1802. 

remains  alwaj^s  optional  with  the  secretary  of  the  treas- 
ury which  of  them  he  will  satisfy ;  and,  where  the  law 
does  not  direct  in  express  terms  the  payment  of  a  debt, 
it  is  left  to  his  discretion  whether  he  shall  pay  it  or 
not." 

The  object  of  the  law  of  March  3,  1795,  was  to  make 
an  efficient  provision  for  the  gradual  reimbursement  of 
the  six-per-cent  deferred  stocks  by  paying  eight  per  cent 
a  year,  and  to  pave  the  way  for  a  future  though  distant 
payment  of  the  foreign  debt  by  giving  to  the  sinking- 
fund  the  unascertained  resources  which  might  be  derived 
from  the  sale  of  lands  and  surpluses  of  revenue,  and, 
after  the  respective  redemption  of  the  six-per-cent  and 
deferred  stocks  in  1818  and  1824,  a  sum  equal  to  the 
interest  accruing  on  the  debt  thus  redeemed. 

This  law,  Gallatin  thought,  did  not  provide  efficiently 
for  the  discharge  of  the  foreign  debt,  especially  as  the 
Dutch  creditors  had  rejected  the  proposal  of  converting 
the  amount  due  to  them  into  a  domestic  debt.  More- 
over, the  appropriations  made  since  1795  had  proved  alto- 
gether inefficient,  and  had  not  "  produced  any  other  effect 
than  that  of  rendering  still  more  complex  a  system  in 
its  nature  sufficiently  intricate."  It  was  also  important 
to  discharge  the  temporary  loans  to  the  Bank  of  the 
United  States  as  soon  as  the  funds  could  be  spared  from 
the  treasury.  To  attain  these  ends,  Gallatin  contended, 
nothing  more  was  necessary  than  to  provide  as  adequately 
as  the  law  of  March,  1795,  had  provided  for  the  pay- 
ment of  an  eight-per-cent  annuity  on  the  six-per-cent  and 
deferred  stocks  by  vesting  in  the  commissioners  of  the 
sinking-fund,  beside  the    other  funds   already  vested   in 


1802.]         PAYMENT   OF   THE    REVOLUTIONARY   DEBT.  55 

them,  such  an  annual  sum,  to  be  paid  from  the  duties  on 
tonnage  and  merchandise,  as  would  be  equal  to  the  pro- 
posed redemption,  and  by  directing  the  commissioners 
to  apply  the  same  in  that  manner.  This  provision,  he 
declared,  would  be  determinate  in  amount,  simple  in 
execution,  and  certain  in  effect :  it  would  neither  derange 
nor  alter  a  single  existing  appropriation  or  payment  in 
relation  to  the  sinking-fund  for  which  the  public  faith 
was  pledged,  but  would  leave  to  all  the  other  uncertain 
funds  of  that  fund,  and  especially  to  the  surpluses  of  the 
revenue,  their  legitimate  operation. ^ 

Congress  adopted  the  plan  proposed.  The  duties  on 
merchandise  and  tonnage,  together  with  other  money 
beside  the  surpluses  of  revenue  then  constituting  the 
sinking-fund,  or  which  should  accrue  to  it  by  virtue  of 
any  former  law,  and  also  the  sums  annually  required  to 
discharge  the  interest  and  charges  accruing  on  the  debt, 
including  temporary  loans  previously  obtained,  and  future 
ones  for  reimbursing  or  redeeming  any  instalments  or 
parts  of  the  principal  of  the  debt,  as  would  amount  to 
an  annual  sum  of  $7,300,000,  were  3'early  appropriated 
to  the  sinking-fund.  In  proposing  this  sum,  Gallatin 
was  not  guided  by  any  abstract  or  arbitrary  principle, 
but  by  the  amount  needed  for  the  present  year  and  the 
two  following  years  in  order  to  meet  the  payments  on 
the  Dutch  debt.  This  appropriation  the  secretary  of  the 
treasury  was  positively  enjoined  to  pay  annually  to  the 
commissioners  of  the  sinking-fund.  It  was  vested  in 
them  in  the  same  way  as  other  money  had  been ;  and 
they  were  required  to  apply  it  in  paying  interest  and 

1  Randolph's  Report,  April  9,  1802,  1  Finance,  p  746. 


56         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1790. 

charges,  and  reimbursing  tlie  principal  of  the  debt.  The 
commissioners  were  authorized  to  borrow  money  to  pay 
the  Dutch  debt,  Congress  prescribing  with  unusual  mi- 
nuteness the  conditions  of  the  loan.^  The  next  year 
$700,000  were  added  to  the  sinking-fund  in  consequence 
of  the  purchase  of  Louisiana.  Although  Gallatin  was 
exceedingly  desirous  of  reducing  the  debt,  he  favored 
this  purchase ;  for  the  territory  was  not  only  very  valu- 
able, but  a  question  was  forever  settled  which  otherwise 
might  cause  national  disquietude. 

Having  traced  the  formal  expression  of  the  govern- 
ment concerning  the  payment  of  its  debt,  let  us  see  how 
its  determination  was  fulfilled. 

When  the  first  funding  Act  was  passed,  Congress  inau- 
gurated, as  we  have  seen,  the  policy  of  appropriating 
certain  revenues  for  the  discharge  of  several  specified 
obligations,  established  a  priority  in  their  paj^ment,  and 
directed  the  secretary  of  the  treasury  to  keep  a  separate 
account  of  the  receipt  and  disposal  of  the  revenues 
thus  appropriated.  To  keep  such  accounts  was  not  an 
easy  task,  and  when  Congress  appropriated  other  reve- 
nues in  the  same  way,  which  was  done  on  several  occa- 
sions afterward,  the  difficulty  of  keeping  each  account 
was  greatly  increased.  The  policy  of  thus  appropriating 
particular  revenues  for  special  purposes  has  found  many 
opponents  and  defenders. 

Hamilton  wished  to  incorporate  into  the  system  of 
national  credit,  as  a  fundamental  maxim,  that  the  creation 
of  debt  should  alwa3'S  be  accompanied  with  the  means 
of  extinguishment.     This  he  regarded  as  the  true  secret 

1  Act,  April  29,  1802,  7  Cons-,  first  session,  chap.  32. 


1790.]         PAYMENT   OF   THE   REVOLUTIONARY   DEBT.  57 

for  rendering  public  credit  immortal.  Congress  was  per- 
suaded by  him  to  adopt  such  a  policy.  It  was  a  repe- 
tition of  the  policy  established  by  the  papal  government 
more  than  six  centuries  ago.  But  the  action  of  Congress 
was  not  uniform.  On  several  occasions  Congress,  when 
raising  revenues,  pledged  them  for  various  purposes,  either 
special  or  general :  in  other  cases,  they  were  not  appro- 
priated in  the  Act  creating  them,  but  became  a  general 
fund  from  which  the  secretary  could  draw  to  meet  other 
engagements. 

The  use  of  "  the  surplus  fund "  we  have  already  de- 
scribed. Of  course,  moneys  falling  into  it  were  unappro- 
priated, and  did  not  belong  to  the  commissioners  of  the 
sinking-fund.  In  1802  Congress  provided,  that,  after  the 
reimbursement  of  the  greater  part  of  the  debt,  any  bal- 
ance of  the  sums  annually  appropriated  for  the  payment 
of  the  debt,  remaining  unexpended  for  six  months  after 
the  close  of  the  calendar  year,  should  be  carried  to  the 
surplus  fund.  With  the  exception  of  the  small  amount 
falling  into  this  fund,  the  total  income  of  the  government, 
beside  the  expense  of  maintaining  it,  was  appropriated  to 
redeeming  its  funded  indebtedness,  or  new  obligations 
constantly  incurred. 

At  first,  progress  in  extinguishing  the  debt  was  slow. 
The  interest  was  promptly  paid,  either  from  revenues 
derived  by  taxation,  or  from  the  proceeds  of  loans 
authorized  for  that  purpose.  Payments  were  made  at 
thirteen  places ;  and  the  making  of  them  was  "  an  opera- 
tion as  difficult  and  complicated  as  it  was  new."  It 
was  necessary  to  lodge  for  some  time  previous  to  the 
expiration  of  each  quarter,  at  several  of  the  loan-offices, 


58         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1790. 

drafts  of  the  treasurer  for  the  sums  estimated  to  be 
needed  at  those  places,  "  with  blanks  for  the  direction," 
and  with  liberty  to  the  respective  officers  to  dispose  of 
them  on  different  places,  as  the  demand  accrued.  Hamil- 
ton had  two  ends  in  view  in  establishing  this  method  of 
paying  interest,  —  one  was  to  avoid  large  accumulations 
at  particular  points;  and  the  other  was  to  facilitate  the 
placing  of  the  requisite  sums  where  they  were  wanted, 
without  the  transportation  of  specie.  Says  Hamilton  in 
one  of  his  communications  to  Congress,  "  The  allowing 
of  the  drafts  to  be  disposed  of  on  several  places  gives 
larger  scope  to  a  demand  for  them,  and  renders  them 
more  easily  salable." 

By  direction  of  the  President,  Hamilton  negotiated 
six  loans  with  parties  in  Holland  during  the  years  1790, 
1791,  and  1792,  and  applied  the  money  in  the  manner 
prescribed  by  Congress.  At  first  Hamilton  sought  to 
negotiate  separate  loans,  based  on  the  two  laws  authoriz- 
ing them ;  but  he  found  that  money-lenders  were  accus- 
tomed to  lend  on  the  general  credit  of  the  government 
borrowing,  "  with  a  sort  of  general  pledge  of  its  revenues 
and  resources,"  and  not  by  virtue  of  any  particular  law. 
As  such  a  thing  was  a  novelty  which  might  lead  to  hesi- 
tation and  embarrassment  "in  the  negotiation  of  the 
loans  and  in  the  application  of  their  proceeds,"  Hamilton 
abandoned  his  original  intention,  and  "concluded  to  let 
the  loans  proceed  indiscriminately  upon  both  Acts."  ^ 

Instead  of  keeping  an  account  of  these  funds  sepa- 
ratel}^  and  applying  them  as  required  by  the  two  laws 

1  Communication  to  House,  ou  Loans,  Feb.  13,  1793,  Works,  vol.  iii. 
p.  371. 


1790.]         PAYMENT   OF   THE   REVOLUTIONARY   DEBT.  59 

under  which  they  were  obtained,  they  were  added  to  the 
surplus  fund,  which  the  secretary  had  a  right  to  apply  in 
a  manner  different  from  the  proceeds  of  the  foreign  loans. 
The  former  fund  he  could  rightfully  apply  toward  the 
payment  of  interest  on  the  domestic  debt,  but  not  the 
foreign  money.  He  did,  however,  use  a  small  portion  of 
it  in  this  way;  yet  the  transaction,  which  gave  rise  to 
to  a  heated  investigation  by  Congress,  was  sustained  by 
a  very  large  majority.^ 

When  investigating  this  subject,  it  was  supposed  that 
the  surplus,  as  well  as  the  proceeds,  of  the  foreign  fund, 
was  kept  separately  from  "  the  common  mass  of  the 
moneys  appearing  from  time  to  time  in  the  treasury." 
Such  had  not  been  the  custom  of  the  department.  All 
moneys,  from  every  source,  were  placed  there,  and  con- 
stituted "an  aggregate,  subject  to  the  dispositions  pre- 
scribed by  law."  The  separation  was  made  only  when 
the  money  was  applied  to  various  purposes :  that  em- 
ployed in  the  sinking-fund,  for  example,  was  separated 
when  taken  for  actual  investment.  The  only  exception 
was  that  portion  of  the  sinking-fund  created  by  the 
interest  of  the  debt  purchased. 

With  the  funds  thus  derived  from  abroad,  a  portion  of 
the  debt  due  to  the  foreign  officers  was  discharged ,  also 
the  Spanish  debt,  the  arrears  of  interest  on  the  foreign 
debt,  and  some  portion  of  the  principal,  as  well  as  inter- 
est, of  the  domestic  debt.  The  gross  principal  of  the 
Holland  loans  authorized  by  the  two  Acts  of  the  4th  and 
12th  of  August,  1790,  received  to  the  end  of  1793,  was 
$8,200,000.     The  principal  of  the  foreign  debt,  which  had 

1  Baldwin's  Report,  May  22,  1794. 


60         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1795. 

been  discharged  by  these  loans,  amounted  to  $3,757,614.- 
64  ,  France  receiving  $3,583,603.64,  and  Spain  $174,011. 
From  the  same  fund  had  been  paid  for  arrears  of  in- 
terest on  the  French  and  Spanish  debt,  to  the  end  of 
1790,  $1,963,971.50.  The  foreign  officers  had  received 
of  the  principal  due  to  them  $50,049.42,  and  as  interest 
$7,305.84.  The  residue  of  the  loans  had  been  applied 
in  other  ways,  or  was  reserved  for  future  application. 

Only  a  short  period  elapsed  before  embarrassments 
arose  respecting  the  payment  of  interest  on  the  loans 
contracted  abroad.  There  was  but  little  specie  in  the 
country ;  while  shipments  of  merchandise  were  often 
objectionable  and  hazardous,  and  the  exchanges  were  so 
deranged  as  to  render  this  an  expensive  way  of  making 
settlements.  To  obviate  these  difficulties,  the  conversion 
of  the  foreign  into  a  domestic  debt  was  authorized.  Dur- 
ing the  spring  and  sunnner  of  1795,  Wolcott,  who  had 
succeeded  Hamilton  as  secretary  of  the  treasury,  sought 
to  effect  such  a  conversion,  and  was  successful  in  convert- 
ing the  French  debt.  The  state  of  affairs  in  France,  and 
the  advantage  of  having  an  active  capital  in  the  United 
States  for  the  purchase  of  provisions  and  stores,  induced 
the  government  to  accept  the  proposal.  The  balance  of 
the  French  debt  was  ascertained,  and  subscribed  to  the 
new  loan,  and  stock  was  issued  therefor.  These  stocks 
were  known  as  the  five  and  a  half  and  four  and  a  half  per 
cents  of  1795,  and  amounted  respectively  to  $1,848,900 
and  $3,176,000.  As  the  Spanish  debt  had  been  already 
extinguished,  the  task  remained  for  Wolcott  to  execute, 
if  possible,  a  similar  arrangement  with  the  creditors  in 
Holland. 


1795.]         PAYMENT    OF    THE   KEVOLUTIONARY   DEBT.    .       61 

The  moment  was  unfavorable  for  executing  the  scheme. 
War  was  raging  in  Europe ;  and  many  European  nations 
were  indebted  to  Dutch  capitalists,  and  some  of  them  had 
failed  to  fulfil  their  obligations.  Communication  with 
England  had  been  severed,  and  a  general  and  unprece- 
dented derangement  existed  in  the  Dutch  finances  and 
exchange.  The  Act,  too,  authorizing  the  operation,  was 
imperfect.  The  additional  interest  prescribed  was  not 
enough  to  counterbalance  the  loss  by  exchange,  the  diffi- 
culty of  transfer,  and,  above  all,  the  redeemable  feature  of 
the  proposed  loan.  Under  these  circumstances  it  was 
found  impossible  to  convert  the  remainder  of  the  foreign 
indebtedness  into  a  domestic  debt. 

The  same  causes  also  operated  to  prevent  the  punctu?' 
payment  of  the  instalment  due  on  the  old  loan  i 
February,  1795.  As  a  preferable  remittance  to  money, 
Hamilton  purchased  of  the  Bank  of  the  United  States 
$500,000  of  six-per-cent  government  stocks,  which  he 
sent  to  brokers  in  Amsterdam  to  sell,  and  with  the  pro- 
ceeds to  pay  the  next  instalment  of  the  debt.  In  April 
the  additional  sum  of  1160,000  was  purchased  by  Wol- 
cott,  and  remitted.  It  was  expected  that  the  stock  would 
be  sold  at  par,  including  interest,  or  that  the  instalment 
would  be  continued  by  a  new  contract.  Both  calculations 
proved  erroneous.  Not  only  could  no  re-loans  be  made 
on  the  terms  proposed,  but  the  bank-stock  could  not  be 
sold  except  at  a  ruinous  sacrifice.  As  the  cause  of  delay 
in  discharging  the  instalment  was  well  known,  and  the 
interest  was  duly  paid,  the  public  credit  did  not  suffer ; 
but  the  fact  proved  how  unwise  Congress  had  been  in 
restricting   the   commissioners  of   the  sinking-fund   with 


62        FINANCIAL  HISTORY  OP  THE  UNITED  STATES.      [1800. 

respect  to  the  terms  of  the  loan,  without  providing  other 
ways  in  case  the  loan  could  not  be  obtained.^ 

The  embarrassment  of  the  treasury  continued  during 
the  summer  of  1796,  from  the  operation  of  the  causes 
previously  mentioned.  Of  the  loan  of  15,000,000,  author- 
ized in  May,  and  known  as  the  six-per-cent  loan  of  1796, 
only  $80,000  were  subscribed.  The  proceeds  were  to  be 
applied  in  payment  of  the  temporary  loans  due  to  the 
bank.  Unable  to  borrow  this  amount,  the  commissioners 
of  the  sinking-fund  were  obliged  to  sell  a  portion  of  the 
bank  stock  owned  by  the  government,  to  reimburse  the 
bank.  The  Act  granting  this  authority  to  them  was  de- 
nounced by  Hamilton  as  a  fatal  invasion  of  the  system 
for  paying  the  debt.  Wolcott  shared  the  same  opinion ; 
and  he  opposed  doing  what  the  law  permitted  until  oppo- 
sition was  seen  to  be  useless. 

The  government  necessarily  incurred  so  many  extraor- 
dinary expenditures,  that  for  several  years  there  was 
no  reduction  of  the  debt.  It  was  needful,  therefore,  to 
increase  the  revenues,  if  debt-paying  was  to  begin.  In 
reporting  the  estimates  for  the  year  1800,  the  committee  of 
ways  and  means  discussed  the  propriety  of  providing  per- 
manent revenues,  not  only  to  pay  the  interest  on  the  loan 
of  '13,500,000,  which  they  had  recommended  Congress  to 
make  in  order  to  pay  the  bank,  but  also  for  "  the  gradual 
and  timely  extinguishment  of  the  principal,"  —  a  policy, 
which,  in  their  opinion,  ought  to  be  invariably  followed 
as  the  only  means  of  avoiding  that  constant  accumu- 
lation of  debt  which  was  the  great  evil  of  the  funding- 
system. 

1  Gibbs's  Adin.,  vol.  i.  p.  184. 


1800.]         PAYMENT    OF   THE   REVOLFTIONARY    DEBT.  63 

Beside  providing  revenues  to  pay  tlie  interest  and  prin- 
cipal of  the  debt  just  mentioned,  there  was  another  loan 
of  15,000,000,  for  the  discharge  of  which  Congress  must 
provide.  The  interest  on  these  two  loans  was  $680,000. 
The  committee  proposed  to  raise  enough  revenue  to  pay 
this  amount,  and  also  two  per  cent  of  the  principal,  which 
would  require  ^170,000  more.  This  annuity  would  extin- 
guish the  debt  in  twenty  four  years,  —  the  term  adopted 
in  the  original  funding-bill  with  reference  to  the  six-per- 
cent stock.  As  the  terms  of  the  last  loan,  however,  pre- 
vented an  application  of  the  annuity  for  ten  years  to  the 
payment  of  it,  the  committee  proposed  the  applying  of 
the  annuity  in  "  the  purchase  of  the  public  debt  in  gen- 
eral by  way  of  sinking-fund."  The  committee  added, 
that  every  consideration  of  sound  policy,  and  the  best 
established  principles  of  financial  economy,  were  in  favor 
of  using  it. 

The  ways  and  means  recommended  by  Wolcott  were 
an  augmentation  of  the  duties  on  wines,  an  increase  of 
two  and  a  half  per  cent  on  those  articles  which  paid 
an  ad  valorem  duty  of  ten  per  cent,  and  a  new  arrange- 
ment respecting  drawbacks.  The  effect  would  be  to 
impose  a  tax  of  fifteen  to  eighteen  per  cent  on  the 
whole  amount.  The  increase  on  wines,  and  the  two 
and  a  half  per  cent  addition  to  the  articles  bearing 
an  ad  valorem  duty,  were  to  be  perpetual :  the  tax  on 
drawbacks  was  to  be  temporary,  lasting  no  longer  than 
the  continuance  of  the  threatened  war  with  Great  Brit- 
ain. The  amount  of  revenue  expected  from  these 
sources  was  $900,000.  Wolcott's  recommendations  were 
considered  by  the    committee  of  ways  and  means,  and. 


61         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1800. 

with   a   slight   modification    in    taxing   drawbacks,    were 
adopted.! 

Beside  the  debt  bequeathed  by  the  former  government, 
the  expenditures  were  increased  in  consequence  of  war 
with  the  Indians,  the  whiskey  insurrection,  the  Barbary 
difficulty,  the  unprovoked  aggressions  of  France,  and  other 
unusual  occurrences.  The  party  opposed  to  the  adminis- 
tration contended  there  had  been  no  reduction  of  the 
debt,  but  rather  an  increase ;  and  the  subject  expanded 
into  a  warm  and  somewhat  protracted  controversy.  A 
true  ans-^er  could  not  be  given  until  the  amount  of  the 
former  indebtedness  was  determined.  Say  a  committee 
who  considered  the  matter  in  May,  1800,  "In  ascertain- 
ing the  amount  of  the  old  debt,  two  different  principle- 
have  been  taken  by  those  who  have  made  their  calcula 
tions  on  this  subject.  The  first  has  been  to  include  only 
the  interest  upon  the  debt  to  the  close  of  the  year  1789, 
as  the  nearest  convenient  period  to  the  day  when  the 
government  commenced  its  operations,  and,  after  deduct- 
ing from  the  aggregate  of  the  debt  the  amount  of  funds 
then  in  the  power  of  the  government,  to  consider  the 
balance  as  the  amount  of  old  debt.  The  second  principle 
has  been  to  take  the  amount  of  debt  as  the  same  has  been 
liquidated  and  funded  under  various  Acts  of  Congress, 
and,  after  deducting  therefrom  the  funds  acquired  or  pos- 
sessed by  the  government  at  the  close  of  the  year  1790, 
to  consider  the  balance  as  constituting  the  true  amount 
of  old  debt.  The  difference  between  these  principles  con- 
sists in  this,  —  by  the  last  mode  of  computation,  the  inter- 

1  Gibbs's  Adm.,  vol.  ii.  p.  329.    Harper's  Report,  April  30, 1800, 1  Finance, 
p.  642. 


1800.]         PAYMENT   OF   THE   REVOLUTlOlSrAKY  DEBT.  65 

est  which  accumulated  upon  the  debt  subsequent  to  the 
close  of  the  year  1789,  and  until  the  debt  was  funded  and 
provided  for  by  law,  is  considered  as  a  part  of  the  old 
debt,  whereas,  by  the  first  mode  of  computation,  that 
interest  is  totally  excluded."  ^ 

In  looking  from  another  side,  perhaps  the  reader  may 
see  into  the  subject  with  greater  clearness.  The  total 
debt  of  the  old  Confederation  funded  was  $76,781,953.14, 
of  which  amount  $3,215,575.37  was  reimbursed  prior  to 
1800.  The  amount  paid  but  not  funded,  of  old  debt,  was 
$15,927.13 :  on  the  other  hand,  $7,212,700  of  new  funded 
debt  was  created.  The  amount  of  property,  including 
cash,  received  from  the  old  government,  was  $90,826.35. 
Not  considering  the  floating  and  temporary  indebtedness, 
and  the  cash  in  the  treasury,  and  uncollected  revenues, 
the  amount  of  permanent  indebtedness  incurred  by  the 
new  government  exceeded  by  more  than  four  millions 
the  indebtedness  of  the  old  government  which  had  been 
discharged. 

Not  until  Gallatin  became  secretary  of  the  treasury 
was  there  any  considerable  reduction  of  the  public  debt. 
He  regarded  the  discharge  of  it  as  "  the  principal  object " 
in  bringing  him  into  office.  Nor  did  he,  during  his  long 
administration  of  the  treasury  department,  ever  manifest 
less  interest  in  accomplishing  this  end  than  in  the  be- 
ginning. 

The  embarrassment  which  Hamilton  and  Wolcott  had 
experienced  in  procuring  remittances  for  Holland  con- 
tinued during  the  early  years  of  Gallatin's  administra- 
tion.    Within  the  first  six  months  of  the  year,  4,439,830 

1  Griswold's  Report  on  the  Public  Debt,  May  8, 1800,  1  Finance,  p.  657. 


66        FINANCIAL  HISTOEY  OF  THE  UNITED  STATES.       [1803. 

guilders  were  payable ;  and  trade  had  sliruiik  so  heavily 
between  the  United  States  and  Holland,  that  it  was  im- 
practicable to  obtain  bills  on  the  latter  country  for  that 
amount.  The  rate  of  exchange  was  forty-one  cents  per 
guilder ;  and  any  attemj)t  to  procure  a  large  amount 
would  surely  cause  an  advance.  A  company  in  New 
York  offered  to  remit  the  whole  amount  at  forty-three 
cents  per  guilder ;  and  Alexander  Baring,  at  two  cents 
per  guilder  less,  provided  the  government  would  sell  to 
him  2,220  shares  of  stock  of  the  United-States  bank  for 
i580  per  share,  or  at  forty-five  per  cent  advance.  This 
was  the  balance  of  bank-stock  owned  by  the  govern- 
ment. The  offer  was  accepted,  and  the  sum  received 
was  applied  on  the  debt  due  to  the  bank ;  while  Baring 
simultaneously  sold  to  the  treasury  an  equal  sum  in  bills 
on  Holland,  at  forty-one  cents  per  guilder. 

"As  the  dividend  usually  received  on  the  bank-stock 
sold,  and  the  annual  interest  payable  on  the  debt  due 
to  the  bank,  were  nearly  equal,  the  July  half-yearly  divi- 
dend on  the  stock  was,  in  fact,  the  premium  paid  for  the 
purpose  of  effecting  the  remittance."  Thus  the  govern- 
ment, without  raising  the  price  of  exchange,  obtained  the 
whole  amount  needed  to  pay  the  sum  due  in  Holland 
until  September,  1803,  at  which  time  the  difficulty  in 
making  remittances  had  passed  away. 

Gallatin  was  able  to  reduce  the  debt  from  the  outset, 
not  by  introducing  new  economies,  or  by  increasing  taxes, 
but  simply  for  the  reason  that  the  unusual  and  extraor- 
dinary expenditures  of  the  government  had  ceased.  In 
1803,  however,  Louisiana  was  purchased  for  $15,000,000. 
Of  this  sum,  $11,250,000  were  raised  by  issuing  a  six- 


1806.]         PAYMENT   OF   THE   REVOLUTIONARY   DEBT.  67 

per-cent  stock,  payable  at  the  treasury  in  four  instal- 
ments. The  first  instalment  was  to  be  paid  in  1818,  and 
the  last  in  1821.  The  remainder  of  the  purchase-money 
consisted  of  payments  to  American  citizens  having  claims 
on  the  government  of  France,  which,  however,  were  not 
to  exceed  $3,750,000.  Gallatin  paid  this  sum  from  the 
annual  revenues ;  so  that  the  permanent  debt  consisted 
only  of  the  stock  created.  The  Louisiana  purchase, 
therefore,  increased  the  debt  to  $85,349,744.35,  —  the 
highest  point  it  ever  reached  until  the  next  war  with 
Great  Britain.^ 

The  reduction  of  the  debt  thereafter  was  rapid.  Gal- 
latin announced  in  1806,  that  as  the  only  portions  of  the 
public  debt  which  the  government  had  a  right  to  pay, 
during  the  year  1807,  consisted  of  the  annual  reimburse- 
ment of  the  six-per-cent  and  deferred  stocks,  amount- 
ing to  $176,000,  it  was  not  practicable,  unless  a  jjurchase 
could  be  effected  within  the  limitations  prescribed  by 
law,  to  apply  that  year  the  entire  annual  appropriation. 
Although  the  old  six-per-cent  and  deferred  stocks  ^  were 

1  In  March,  Congress  directed  that  an  inquiry  be  made  of  the  commis- 
sioners of  the  sinking-fund,  concerning  the  application  of  the  money 
received  by  them.  The  inquiry  was  occasioned  by  a  variance  between  the 
reports  of  the  secretary  of  the  treasury  and  that  of  the  sinking-fund  com- 
missioners, which,  happily,  was  satisfactorily  explained.  It  contains  a 
very  good  account  of  the  proceedings  of  the  commissioners,  and  of  their 
construction  of  the  law  appropriating  $7,300,000  annually  to  the  payment 
of  the  interest  and  principal  of  the  public  debt. 

2  The  deferred  stock  was  that  which  began  to  bear  interest  in  1800.  At 
this  time  (1806)  the  annuity  on  every  hundred  dollars  of  the  six-per-cent 
stock  was  $30.16,  making,  in  the  aggregate,  $8,500,000;  and  on  every  hun- 
dred dollars  of  the  deferred  stock,  $11.30,  making  $1,510,000. —2  Finance, 
p.  213. 


68        FINANCIAL  HISTOBY  OF  THE  UNITED  STATES.      [1806. 

still  regarded  as  six-per-cent  stocks,  both,  in  truth,  were 
an  annuity  of  eight  per  cent  on  the  original  nominal 
amount,  which,  extinguishing  the  principal  by  degrees, 
would  cease  for  the  old  six-per-cent  stock  in  1818,  and 
for  the  deferred  in  1824.  A  certificate  of  six-per-cent 
stock,  of  one  hundred  dollars  nominal,  was  considered 
the  1st  of  January,  1806,  as  equal  to  $69.84  real  six-per- 
cent stock,  because  $30.16  of  the  principal  had  been  dis- 
charged by  the  annual  reimbursement  of  eight  per  cent ; 
instead  of  which,  it  was  an  annuity  of  eight  dollars  for 
twelve  years  and  somewhat  less  than  nine  months.  In 
the  same  manner,  a  certificate  of  deferred  stock,  of  one 
hundred  dollars  nominal,  was  regarded  as  equal  to  $78.70 
real  six-per-cent  stock ;  instead  of  which,  it  was,  strictly 
speaking,  an  annuity  of  eight  dollars  for  eighteen  years 
and  somewhat  less  than  nine  months.  Gallatin  now  pro- 
posed to  the  committee  of  ways  and  means,^  that  the 
government  offer  to  exchange  a  common  six-per-cent 
stock,  equal  in  amount  to  the  unredeemed  sum  of  the 
present  stocks,  and  redeemable  at  the  pleasure  of  the 
United  States.  They  were  to  be  reimbursed  on  a  single 
day,  the  government  giving  a  reasonable  notice  of  its 
intention.  Gallatin  then  set  forth  the  advantages  to  the 
government  and  the  public  from  adopting  the  plan ;  nor 
did  he  experience  any  difficulty  in  convincing  the  com- 
mittee of  its  practicability.  A  bill  embodying  his  pro- 
posal was  presented  and  passed,  and  a  very  considerable 
portion  of  the  old  six-per-cent  and  deferred  stocks  was 
converted.^ 

1  Jan.  20,  1806,  2  Finance,  p.  212. 

a  Act,  Feb.  11,  1807,  9  Cong.,  first  session,  chap.  12. 


1807.]         PAYMENT   OF   THE   REVOLUTIONARY   DEBT.  69 

In  January,  1809,  the  following  exchanges  had  been 
effected :  — 

NOMINAL  AMOUNT. 

Certificates  of  old  six-per-cent  stock    ....     $7,435,767  61 
Certificates  of  deferred  six-per-cent  stock    .         .         .       1,940,672  01 
In  lieu  of  which,  certificates  of  exchanged  stock  for 
the  unredeemed  amount  of  the  certificates  of  old 
six-per-cent    and    deferred    stocks   were    issued, 

amounting  to 6,294,051  12 

Certificates  of   three-per-cent  stock  were  surrendered, 

to  the  amount  of 2,861,309  15 

In  lieu  of  which,  certificates  of  converted  stock  were 

issued,  amounting  to     .         .         <         .         .         .      1,859,850  70 

So  glibly  did  the  reduction  of  the  public  debt  proceed, 
that  the  salt-tax,  which  yielded  about  half  a  million  a 
year,  was  abandoned  in  1806;  and  both  the  President 
and  Gallatin  voiced  their  oft-recurring  dream  of  founding 
a  splendid  system  of  higher  education  for  the  people, 
and  of  constructing  a  vast  net-work  of  improved  ways 
of  communication  through  all  parts  of  the  country. 
Gallatin  spent  a  year  in  working  out  the  scheme,  and 
presented  it  to  Congress  in  1808. 

But  this  glorious  vision,  so  joyfully  beheld,  and  sm 
dearly  cherished,  was  soon  to  disappear.  The  rumbling 
of  war  was  heard  in  the  distance.  Gallatin's  annual 
report  for  1807  contains  some  weighty  words  which  show 
clearly  enough  that  he  was  thinking  of  the  dark  possi- 
bilities of  the  future.  "A  previous  accumulation  of 
treasure,"  he  remarks,  "in  time  of  peace,  ought,  in  a 
great  degree,  defray  the  extraordinary  expenses  of  war, 
and  diminish  the  necessity  of  other  loans  or  additional 
taxes.    It  would  provide,  during  periods  of  prosperity,  for 


70        FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1808. 

those  adverse  events  to  which  every  nation  is  exposed, 
instead  of  increasing  the  burdens  of  the  people  at  a  time 
when  they  are  least  able  to  bear  them,  or  of  impairing, 
by  anticipations,  the  resources  of  ensuing  generations. 
And  the  public  moneys  of  the  United  States  not  being 
locked  up,  and  withdrawn  from  the  general  circulation, 
but,  on  the  contrary,  deposited  in  banks,  and  continuing 
to  form  a  part  of  the  circulating  medium,  the  most  for- 
midable objection,  which  has,  nevertheless,  been  at  times 
adopted  with  considerable  success  in  other  countries,  is 
thereby  altogether  removed."  Gallatin  then  considered 
the  utility  of  renewing  the  bank  charter;  nor  did  he 
shrink  from  tracing  the  disastrous  consequences  to  the 
revenue,  should  '  the  United  States,  contrary  to  their 
expectation  and  desire,  be  involved  in  war." 

It  is  true,  that,  in  his  report  for  the  year  1808,  Gallatin 
was  able  to  announce  a  larger  income  than  ever,  exceed- 
ing 116,000,000.  But  an  embargo  which  greatly  dimin- 
ished imports  was  in  operation,  and  the  receipts  into  the 
treasury  had  been  largely  derived  from  duties  accruing 
the  previous  year,  and  from  the  diminution  of  payments 
in  the  way  of  drawbacks.  The  following  year  the  expen- 
ditures, excluding  payments  of  the  principal  of  the  debt, 
exceeded  the  revenue  from  all  sources  nearly  $l,300-,000. 
There  was  a  surplus,  however,  for  the  year  1810,  of 
■15,000,000.  This  was  the  effect  of  the  system  of  open 
trade,  which  was  established  for  a  short  interval  during 
the  year.  But  when  the  embargo  was  revived,  gloom 
settled  over  the  land,  and  the  revenues  rapidly  shrank. 
Notwithstanding  these  events,  Gallatin  was  able,  the  next 
year,  to  pay  $5,163,376  of  the  debt.     More  than  half  this 


1811.]         PAYMENT   OF   THE   REVOLUTIONAKY   DEBT.  71 

sum  was  borrowed  of  the  United-States  bank;  and  the 
actual  decrease  of  the  debt,  during  the  year,  was  only 
$2,413,376.1 

During  these  eleven  years,  $46,022,810  of  the  funded 
debt  had  been  paid,  and  $45,154,189  remained,  which  in- 
cluded $11,250,000  incurred  for  the  purchase  of  Louisiana. 

The  disposable  national  revenue,  or  that  portion  which 
might  be  applied  in  defraying  the  annual  national  expendi- 
ture, consisted  only  of  the  surplus  of  the  gross  amount  of 
revenue  collected,  beyond  the  amount  necessary  for  pay- 
ing the  interest  on  the  public  debt.  To  diminish  that 
interest,  therefore,  was  to  increase  the  amount  for  defray- 
ing the  other  annual  expenses  of  the  government.  With 
an  equal  amount  of  gross  revenue,  the  revenue  which 
might  be  applied  in  defraying  the  national  expenses  in 
consequence  of  the  reduction  of  the  debt  was  $2,600,000 
greater  than  in  April,  1801.^ 

During  the  last  eight  years,  $8,000,000  had  been  paid 
annually  on  account  of  the  principal  and  interest  of  the 
debt.  No  other  portion  was  reimbursable  after  the  end 
of  1811,  except  the  residue  of  converted  stock,  which 
amounted  only  to  $565,000.  The  whole  amount  payable 
after  the  year  1812,  including  the  annual  reimbursement 
on  the  six-per-cent  and  deferred  stocks,  was  $3,792,382, 
making  an  annual  difference  of  more  than  $4,200,000 
which  would  be  liberated  from  that  appropriation.  More- 
over, this  annual  payment  of  less  than  $4,000,000  would 
have  been  sufficient,  with  some  small  variations,  to  dis- 
charge, in  ten  years,  the  remainder  of  the  debt,  excepting 

1  Gallatin's  Annual  Report,  December,  1810. 

2  Gallatin's  Annual  Report,  November,  1811. 


72        FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1811. 

the  three-per-cent  stock,  the  interest  on  which  was  only 
•1485,000.  The  war,  however,  delayed  the  consummation 
of  the  desired  end  twelve  years  longer,  or  until  1834. 

The  redemption  of  the  debt  had  been  effected  without 
the  aid  of  internal  taxes,  either  direct  or  indirect,  and, 
during  the  last  seven  years,  without  any  addition  to  the 
rate  of  duties  on  importations.  But  it  should  be  remem- 
bered that  an  increase  of  two  and  a  half  per  cent  ad  valo- 
rem duties,  known  as  the  "  Mediterranean  fund,"  was 
imposed  soon  after  the  repeal  of  the  internal  duties.  The 
salt-tax,  though,  had  been  removed  ;  and,  during  the  last 
four  years,  there  had  been  a  great  diminution  in  American 
commerce,  and  the  revenues  of  the  government  had  suf- 
fered severely  in  consequence  of  this  unhappy  event. 

''It  therefore  proves  decisively,"  said  Gallatin  in  his 
report  for  1811,  "the  ability  of  the  United  States,  with 
their  ordinary  revenue,  to  discharge,  in  ten  years  of 
peace,  a  debt  of  $42,000,000,  —  a  fact  which  considerably 
lessens  the  weight  of  the  most  formidable  objection  to 
which  that  revenue,  depending  almost  solely  on  commerce, 
appears  to  be  liable.  In  time  of  peace,  it  is  almost  suffi- 
cient to  defray  the  expenses  of  a  war :  in  time  of  war,  it 
is  hardly  competent  to  support  the  expenses  of  a  peace 
establishment.  Sinking,  at  once,  under  adverse  circum- 
stances, from  fifteen  to  eight  millions  of  dollars,  it  is  only 
by  a  persevering  application  of  the  surplus  which  it  affords, 
in  years  of  prosperity,  to  the  discharge  of  the  debt,  that 
a  total  change  in  the  system  of  taxation,  or  a  perpetual 
accumulation  of  debt,  can  be  avoided." 


1789.]  TAXATION   OF   IMPORTS.  73 


CHAPTER  V. 

TAXATION  OF  IMPORTS. 

When  the  members  of  Congress  assembled  for  the  first 
time,  poverty  was  written  on  more  than  one  face,  as  well 
as  on  the  door  of  the  public  treasury.  Even  Washington, 
during  the  earlier  days  of  his  administration,  was  obliged 
to  borrow  money,  and  pay  heavy  interest,  to  maintain  him- 
self and  his  household.  To  supply  the  immediate  wants 
of  the  government,  Hamilton  negotiated  several  loans 
with  the  Bank  of  New  York,i  and  addressed  a  letter  to 
the  American  bankers  in  Holland,  asking  for  a  provisional 
loan  of  three  million  florins.^  There  was  no  law  author- 
izing these  loans,  and  they  were  speedily  discharged ;  but 
the  need  of  money  was  so  great,  that  no  one  ever  ques- 
tioned the  propriety  of  Hamilton's  conduct  in  making 
them.  In  one  of  his  earliest  communications  to  the  House, 
he  declared  that  "obvious  considerations  dictate  the  pro- 
priety, in  future  cases,  of  making  previous  provision  by 
law  for  such  loans  as  the  public  exigencies  may  call  for, 
defining  their  extent,  and  giving  special  authority  to  make 
them."^     Thus  he  clearly  recognized  the  impropriety  of 

1  Hamilton's  Statement  to  the  House,  Jan.  11,  1793,  1  Finance,  p.  185. 

2  Hamilton's  Hist,  of  Repub.,  vol.  iv.  pp.  32,  48. 

8  Hamilton's  Report  on  Additional  Estimates  for  1790,  1  Finance, 
p.  38. 


74         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1789. 

his  action  furnishing  a  precedent,  either  for  himself  or  for 
subsequent  secretaries,  to  borrow  money  without  the  au- 
thority of  Congress. 

The  most  pressing  business  of  Congress,  therefore,  was 
to  provide  a  revenue  for  the  maintenance  of  the  govern- 
ment. Madison  introduced  a  resolution  for  the  establish- 
ment of  an  impost  similar  to  the  one  discussed  in  the 
Congress  of  the  Confederation  in  1783.  The  bill  imposed 
specific  duties  on  a  few  enumerated  articles  of  general 
consumption,  and  an  ad  valorem  duty  of  five  per  cent  on 
others.  A  tonnage  duty  also  was  added,  which  gave  a 
preference  to  American  over  foreign  vessels,  and  discrimi- 
nated in  favor  of  those  nations  with  which  the  United 
States  "  were  in  treaty." 

Hamilton  was  opposed  to  framing  any  permanent  bill, 
because  Congress  did  not  know  enough  about  the  subject 
to  legislate  wisely.  He  proposed,  therefore,  that  a  general 
ad  valorem  duty  should  be  charged  on  all  importations. 
Madison  thought  otherwise.  He  believed  that  Congress 
could  safely  go  further  toward  a  definitive  solution  of  the 
question.  There  were  others  who  urged  the  adoption  of 
such  a  tariff  as  would  encourage  and  protect  home  manu- 
factures. The  members  from  Pennsylvania  pressed  this 
view  with  considerable  zeal;  and  they  offered  a  resolution 
enumerating  the  articles,  the  manufacture  of  which  they 
proposed  the  government  should  "  encourage  and  pro- 
tect." Madison  contended  that  it  was  the  duty  of  Con- 
gress to  protect  national  as  well  as  local  interests,  and 
tliat  the  States,  having  surrendered  the  power  of  protec- 
tion, had  a  right  to  expect  it  from  the  general  govern- 
ment.    Various  discriminative  duties  were  proposed,  some 


1789.]  TAXATION   OF   IMPORTS.  75 

avowedlj^  pr.)hibitive.  During  the  discussion  of  the  meas- 
ure, petitions  were  presented  from  various  quarters  in  favor 
of  a  revenue  system,  the  chief  object  of  which  should  be 
to  foster  "  domestic  industry." 

The  discrimination  in  the  tonnage  duty  proposed  by 
Madison  caused  an  exciting  debate.  Some  members  con- 
tended for  a  discrimination  in  favor  of  France,  in  requital 
for  the  debt  of  gratitude  which  America  owed  to  her, 
and  which  ought  not  to  be  forgotten.  There  were  those, 
however,  who  saw  that  the  present  situation  required  the 
maintenance  of  a  perfect  neutrality  on  the  part  of  the 
American  Government  toward  other  nations.  "  Nations 
in  treaty "  could  not  supply  all  the  shipping  needed : 
hence  that  of  Great  Britain  would  be  required  to  trans- 
port our  produce.  Such  a  discrimination,  therefore, 
would  operate  as  a  bounty  to  foreigners  and  as  a  tax 
on  ourselves,  and  would  be  regarded  as  retaliatory. 
Great  as  was  the  debt  of  gratitude  owing  to  France, 
the  discrimination  proposed  was  too  heavy  a  charge  to 
be  borne  by  the  American  people  in  return  for  past 
favors. 

Congress  finally  decided,  "whereas  it  was  necessary 
for  the  support  of  government,  for  tlie  discharge  of  the 
debts  of  the  United  States,  and  the  encouragement  and 
protection  of  manufactures,  that  duties  be  laid  on  goods, 
wares,  and  merchandises  imported,"  to  levy  specific  as 
well  as  ad  valorem  duties,  allowing  drawbacks  on  goods 
exported  within  a  year,  and  a  discount  of  ten  per  cent 
on  goods  imported  in  vessels  which  were  owned  entirely 
in  the  United  States.  To  the  ships  of  all  foreign  nations 
engaged  in  American  commerce,  an  equal  advantage  was 


76         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1790. 

given.  The  measure  was  to  continue  in  force  until  the 
end  of  the  session  of  Congress  held  after  the  first  day  of 
June,  1796.1  Hamilton  advocated  the  raising  of  "  per- 
manent funds "  as  the  only  basis  for  the  adequate  sup- 
port of  public  credit. 

This  Act  was  speedily  followed  by  another,  which  regu- 
lated the  duties  charged  on  all  ships  or  vessels  entering 
the  ports  of  the  United  States.  A  discrimination  was 
made  in  the  beginning  in  favor  of  American  owners. 
They  were  required  to  pay  only  six  cents  per  ton,  and 
foreign  owners  fifty.  On  vessels  owned  partly  in  this 
country,  and  in  part  abroad,  a  duty  of  thirty  cents  per 
ton  was  levied.^ 

At  the  second  session,  higher  rates,  both  specific  and 
ad  valorem,  were  substituted.  The  lowest  ad  valorem 
duty  was  five  per  cent ;  but  it  was  not  levied  on  so  many 
articles.  The  free  list  was  somewhat  extended  in  those 
directions  which  were  thought  to  be  helpful  to  manufac- 
tures and  agriculture.  It  was  further  declared  that  the 
duties  thus  levied  should  be  continued  until  the  debts 
and  purposes  for  which  they  were  appropriated  were 
satisfied.  Congress,  however,  reserved  the  right  to  sub- 
stitute other  duties  or  taxes  of  equal  value.^ 

1  Act,  July  4,  1789, 1  Cong.,  first  session,  chap.  2.  "  There  were  no  pro- 
hibitory views  entertained  in  the  Act;  but  the  idea  of  incidental  protec- 
tion that  the  necessary  duties  would  afford  to  the  manufactures,  started 
into  life  during  the  war,  was  held  out  to  counteract,  in  some  degree,  the 
popular  prejudices  against  all  taxation.  The  political  prejudice  against 
British  goods,  which  existed  before  the  war,  was  appealed  to,  under  the 
Union,  to  make  taxation  palatable."  —  Dem.  Rev.,  September,  1846. 

2  Act,  July  20,  1789,  1  Cong.,  first  session,  chap.  3. 

3  Act,  Aug.  10,  1790,  1  Cong.,  second  session,  chap.  39. 


1812.]  TAXATION   OF   IMPORTS.  77 

The  next  year  the  duties  on  miported  spirits  were 
increased  from  twenty  to  forty  cents  a  gallon,  and  a  tax 
was  laid  on  spirits  distilled  at  home.  In  consequence  of 
the  large  outlay  to  protect  the  frontier,  several  of  the 
duties  were  increased  at  the  following  session  of  Con- 
gress. 

Thus  the  duties  grew  heavier  annually ;  yet,  when  the 
government  was  six  years  old,  the  burden  of  taxation 
did  not  cause  any  dissatisfaction,  unless,  perhaps,  the 
duty  on  salt  was  regarded  as  too  great.  Even  that  was 
not  very  keenly  felt,  and  might  have  been  deemed  mod- 
erate, compared  with  the  tax  imposed  by  some  govern- 
ments. Gallatin  said  it  was  higher,  in  proportion  to  the 
value  of  the  article,  than  that  paid  on  any  other,  and 
that,  whatever  impediment  might  exist  in  the  way  of  its 
repeal  from  the  difficulty  of  finding  a  substitute,  it  would 
be  equally  unjust  and  impolitic  to  raise  it  above  the 
present  rate.  So  far  as  the  article  was  consumed  by  man, 
it  was  a  species  of  poll-tax,  which  fell  alike  on  the  poor 
and  rich :  when  consumed  by  cattle,  it  was  a  tax  on 
agriculture,  and  would  prove  pernicious  if  ever  increased 
so  high  as  to  check  its  use.^ 

Between  1789  and  1812,  thirteen  tariff  laws  were 
enacted,  the  general  scope  of  which,  was  to  increase  the 
duties  as  well  as  the  number  of  dutiable  articles.^     The 

1  Writings  of  Gallatin,  vol.  iii.  p.  82. 

2  In  1793  Jefferson  made  a  report  on  "  the  privileges  and  restrictions  on 
the  commerce  of  the  United  States  in  foreign  countries."  For  this  docu- 
ment the  House  had  called  in  1791;  but  two  years  passed  before  Jefferson 
reported.  There  was  much  excitement  then  concerning  our  relations  with 
France  and  Great  Britain.  The  national  sympathy  toward  France  was  as 
heartv  and  universal  as  was  the  hatred  toward  Great  Britain.    The  re- 


78        FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1789. 

increase  was  for  the  purpose  of  meeting  the  expenditures 
of  the  government,  and  the  payment  of  the  national 
indebtedness.  But  the  protection  of  American  indus- 
tries was  not  ignored,  as  the  history  of  the  proceedings 
of  Congress  clearly  shows.^  The  subject,  however,  did  not 
assume  such  importance  in  the  debates  of  that  body  as 
it  has  subsequently  acquired.  One  reason  was,  because 
public  sentiment  was  so  strongly  united.  The  reports 
of  the  committees  of  Congress,  and  the  subsequent  de- 
bates thereon,  show  very  clearly  that  the  protection  of 
American  industries  from  foreign  competition  was  a 
principle  very  widely  accepted.  Wherever  may  lie  the 
truth  respecting  free  trade  and  protection,  as  the  subject 
is  popularly  termed,  there  is  no  question  whatever,  that 
in  the  earlier  history  of  the  Republic  the  tide  of  public 
opinion  set  more  strongl}^  in  the  direction  of  govern- 
mental protection  than  it  does  to-day.  The  atmosphere 
was  heavily  charged  at  that  time  with  the  idea  of  improv- 
ing home  industries. 

Throughout  the  Colonial  period  the  English  Govern- 
ment had  sought  to  restrain  every  kind  of  domestic  manu- 
facture unfavorably  affecting  the  manufacturing  interests 
of  the  parent-country.     The  jealousy  of  the  English  Gov- 

port  recommended  a  system  of  discriminating  duties  in  favor  of  France, 
and  against  British  prodiacts.  Hitherto  he  had  been  opposed  to  protective 
duties  of  every  kind;  but  in  this  his  last  official  report  as  secretary  of 
state  he  did  not  hesitate  to  recommend  them.  —  Gibb's  Adm.  of  Wash,  and 
Adams,  vol.  i.  p.  119.  The  report  caused  a  lengthy  debate,  which  ended 
with  the  rejection  of  the  system  projiosed  by  Jefferson. 

1  A  committee  of  the  House  recommended  the  granting  of  a  loan  of 
eight  thousand  dollars  to  a  glass  manufacturer  who  had  suffered  loss  by 
fire;  but  the  report  was  not  adopted.  —  1  Finance,  p.  62. 


1789.]  TAXATION   OF   IMPORTS.  79 

ernment  in  this  regard,  and  of  its  manufacturing  classes, 
is  a  familiar  fact  of  history.  The  colonists  were  permit- 
ted to  plant,  sow,  and  reap,  to  live  and  labor  for  their 
happiness  and  prosperity,  so  long  as  they  did  not  mar  the 
peace  and  prospects  of  their  English  brethren  across  the 
ocean. 

With  the  acknowledgment  of  independence  by  Great 
Britain,  and  the  establishment  of  peace,  blessed  as  that 
peace  was,  it  could  not  efface  all  the  wrongs  of  the  past. 
The  s[)irit  which  the  English  manufacturer  and  his  gov- 
ernment had  manifested  toward  America  could  not  be 
speedily  forgotten.  The  recollection  of  these  things 
contributed  very  much  in  coloring  the  early  tariff  legis- 
lation of  this  country.  We  were  more  eager  to  manu- 
facture and  to  wear  homespun  goods  because  of  the 
treatment  we  had  received  from  our  English  mother. 
The  manufacturing  of  goods  in  the  United  States 
at  that  period  was  not  a  business  merely  of  dollars 
and  cents.  Let  any  one  read  the  literature  of  the 
time,  and  he  will  find  that  home  manufactures  were 
encouraged,  not  solely  to  get  them  cheaper,  either 
immediately  or  prospectively,  but  because  revenge  was 
sweet,  even  if  purchased  at  considerable  cost  to  the 
avenger. 

In  1789,  when  the  first  tax  on  imports  was  im- 
posed, there  were  several  circumstances  which  favored 
the  experiment  of  home  manufacturing.  The  value 
of  labor,  provisions,  fuel,  rents,  and  raw  material,  were 
much  lower  than  they  had  been,  and  cotton-machines 
to  some  extent  had  been  introduced.  Hemp  had  risen 
in  Russia   thirty    or   forty   per   cent;    and    this   advance 


80        FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1789. 

aiforded  a  protection  to  the  American  cultivator  of 
that  product.^ 

The  desire,  .too,  for  European  manufactures  and  luxu- 
ries, which  spread  after  the  close  of  the  war,  had  been 
checked.  "  Ashamed  of  our  folly,"  says  a  writer,  "  and 
alarmed  at  the  danger  we  were  in,  a  serious  change  was 
generally  resolved  on,  and  has  generally  taken  place,  as 
beneficial  to  home  manufactures  as  our  former  habits  were 
injurious.  Buckskin  breeches  and  gloves,  home-made 
jeans  and  cottons,  homespun  stockings  of  thread,  cotton, 
and  worsted,  American  porter,  beer,  and  cheese,  and 
many  other  articles,  have  become  fashionable  in  dress, 
and  familiar  in  diet;  and  in  general  a  greater  sim- 
plicity and  frugality  has  been  introduced  into  our 
families."  ^ 

But  an  emptying  of  private  purses  was  not  less  potent 
in  causing  this  return  to  home  productions,  and  to  greater 
simplicity  of  living,  and  sharper  economy,  than  pure 
patriotism,  and  a  revengeful  remembrance  of  ill  treatment 
by  the  mother-countr}^  Imports  of  merchandise  had 
greatly  exceeded  exports,  and  the  balance  could  be  liqui- 
dated only  in  specie.  This  was  soon  exhausted.  Credit 
did  not  exist ;  and  the  people  could  not  do  otherwise  than 

1  Hamilton,  in  his  famous  report  on  manufactures,  after  enumerating 
seventeen  kinds  of  manufactures  which  were  flourishing  in  tlie  country, 
including  iron,  cotton,  wool,  flax,  and  hemp,  adds,  "  Besides  manufacto- 
ries of  these  articles,  which  are  carried  on  as  regular  trades,  and  have 
attained  to  a  considerable  degree  of  maturity,  there  is  a  vast  scene  of 
household  manufacturing,  which  contributes  more  largely  to  the  supply 
of  the  community  than  could  be  imagined,  without  having  made  it  an 
object  of  particular  inquiry." 

2  Tench  Coxe,  Am.  Museum,  vol.  iv.  p.  344. 


1800.]  TAXATION   OF   IMPORTS.  81 

curtail  their  purchases  of  foreign  goods,  whatever  might 
be  their  wishes.^ 

The  destruction  of  our  credit,  therefore,  was  a  blessing 
to  the  home  manufacturer.  Nor  was  the  blessing  of  less 
consequence  to  "the  landed  gentlemen  throughout  the 
Union."  "  They  now  suddenly  see,"  says  a  writer  of  that 
period,  "that  it  is  their  interest  to  purchase  home-made 
articles  at  a  given  price,  rather  than  imported ;  because  the 
foreign  manufacturer  calls  not  for  their  produce,  either 
for  provisions  or  raw  materials,  but  the  American  manu- 
facturers must  necessarily  consume  both."  According!}', 
a  new  movement  was  begun  to  extend  American  manu- 
factures. The  movement  became  general.  The  literature 
of  the  day  was  full  of  appeals,  addresses,  and  resolutions 
setting  forth  the  duty  of  the  people  to  encourage  home 
industry  .2 

Not  only  did  this  spirit  permeate  the  people  during  the 
administrations  of  Washington  and  Adams :  it  continued 
for  a  long  period  without  any  perceptible  abatement. 
Memorials  were  presented  to  Congress  from  every  quar- 
ter,—  from  gun  manufacturers,  bottlers,  iron,  copper, 
leather,  and  twine  manufacturers,  the  cultivators  of  hemp, 
the  distillers  of  ardent  spirits,  and  from  other  sources. 
Some  of  these  memorials  were  very  elaborate,  like  the 

1  Gov.  Sullivan  of  New  Hampshire,  in  an  address, said,  "This  halance 
of  trade  against  a  nation,  like  a  whirlpool,  drains  off  the  circulating  cash, 
and  leaves  the  people  '  poor  indeed.'  This  among  others  (which  it  is  not 
my  province  to  name)  is  a  great  cause  of  the  scarcity  of  money  among  us 
at  this  day,  and  is  one  principal  foundation  of  our  present  distress.  We 
feel  the  evil,  antl  complain,  though  very  few  attempt  to  discover  its  source." 
—  Am.  Masemn,  vol.  v.  p.  577. 

2  Am.  Museum,  vol.  v.  frequent  references.         \ 


82         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1804. 

memorial  presented  by  the  artisans  and  manufacturers  of 
Philadelphia.!  They  set  forth  at  considerable  length  the 
reasons  why  a  large  number  of  articles,  even  of  the  first 
necessity,  manufactured  for  the  United  States  by  foreign 
nations,  were  produced  here  less  advantageously.  Briefly 
stated,  the  reasons  were,  foreign  fashion,^  the  overstock- 
ing of  the  American  market  with  foreign  goods,  unjust 
competition  with  foreign  manufacturers,  the  expense 
necessarily  attending  the  commencement  of  complicated 
manufactures,  and,  lastly,  duties  injudiciously  laid  on  raw 
materials  or  goods  partially  manufactured. 

During  the  first  and  second  sessions  of  the  seventh  Con- 
gress, applications  for  protection  rapidly  multij^lied.  A 
report  thereon  was  made  by  the  committee  of  commerce 
and  manufactures.  A  succinct  history  of  the  efforts  to 
protect  home  industries  was  given.  One  mode  of  encour- 
aging them  had  been  to  exempt  imported  raw  materials 
from  taxation  :  consequently,  wrought  iron  and  unwrought 
burrs  were  thus  admitted ;  so  were  the  bristles  of  swine, 
the  regulus  of  antimony,  rags,  saltpetre,  and  sulphur. 
These  exemptions  were  made  for  the  purpose  of  aiding 
those  who  used  these  things  in  the  manufacture  of  other 
commodities.  Another  mode  of  encouraging  manufac- 
tures was  "by  laying  higher  or  prohibitory  duties  on 
manufactured  articles  imported."  A  third  mode  was  with- 
holding a  drawback  from  articles  of  foreign  manufacture 
subsequently  exported.  Such  a  policy  was  adopted  with 
reference  to  loaf  and  refined  sugar.     A  fourth  mode  of 

1  Presented  Dec  9,  1803 

2  For  prejudice  against  the  use  of  American  paper,  see  Niles,  vol.  i. 
p.  462,  note. 


1804.]  TAXATION    OF   IMPORTS.  83 

encouragement  was  the  allowance  of  a  drawback  on 
domestic  manufactures  equal  to  the  duty  paid  on  the 
imported  raw  materials  used  in  such  manufactures.  A 
drawback,  therefore,  was  allowed  on  the  re-exportation 
of  sugar  refined  from  the  foreign  material,  and  on  rum 
distilled  from  molasses.  A  final  mode  of  encouragement 
was  the  bestowal  of  direct  bounties,  which  were  received 
by  fishermen  engaged  in  curing  and  exporting  fish. 

"  From  this  view  of  the  proceedings  of  Congress,"  say 
the  committee,  "  it  will  appear  that  much  has  been  done 
already  to  encourage  the  domestic  industries  of  our  citi- 
zens. Industry,  under  such  aids  as  the  government  by 
these  means  has  given,  at  a  time  when  population  is 
so  rapidly  increasing,  has  caused  useful  arts  and  manu- 
factures to  rise  up  and  thrive  in  almost  every  part  of  the 
country.  Our  works  in  wood,  copper,  hemp,  leather,  and 
iron,  are  really  excellent  and  extensive ;  and  if  we  do  not 
excel  in  the  manufacture  of  the  finer  articles  of  cotton, 
silk,  wool,  and  the  metals,  we  may  felicitate  ourselves, 
that,  by  reason  of  the  ease  of  gaining  a  subsistence  and 
the  high  price  of  wages,  our  fellow-citizens  born  to  hap- 
pier destinies  are  not  doomed  to  the  wretchedness  of  a 
strict  discipline  of  such  manufactures.'"  The  committee 
continue  in  the  following  exulting  strain :  "  Our  citizens 
are  distinguished  for  their  ingenuit}-  and  skill.  They  have 
invented  many  expedients  by  machinery  to  shorten  and 
cheapen  labor.  The  machines  for  making  wool  and  cot- 
ton cards,  the  machines  for  ginning  cotton,  the  machines 
for  cutting  and  heading  nails,  the  machinery  for  elevating 
wheat  and  for  raising  and  stirring  meal  in  mills,  and  the 
improvements  in  the  manufacture  of  muskets,  class  with 


84         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1804. 

all  the  most  useful  inventions  with  which  the  age  has 
been  adorned." 

The  conclusions  of  the  committee  were  in  harmony  with 
their  reasonings.  The  secretary  of  the  treasury,  comply- 
ing with  a  resolution  of  Congress,  had  prepared  a  plan  for 
levying  new  and  more  specific  duties.  This  report  formed 
the  basis  of  the  calculations  of  the  committee.  They 
recommended  that  rags  of  linen,  cotton,  woollen,  and 
hempen  cloths,  bristles  of  swine,  regulus  of  antimony, 
unwrought  burr-stones,  saltpetre,  and  the  bark  of  the 
cork-tree,  should  be  admitted  without  payment  of  a  duty, 
though  previously  a  duty  of  twelve  and  a  half  per  cent 
had  been  exacted.  The  duty  on  brushes  and  black  bot- 
tles, of  twelve  and  a  half  per  cent,  was  doubled ;  that  on 
fur  hats  and  plated  ware  was  raised  from  fifteen  to  twenty 
per  cent,  and  on  stone-ware,  window-glass,  and  cannon- 
balls,  from  fifteen  to  twenty-five  per  cent.  Foreign  pickled 
and  dried  fish,  on  which  a  duty  of  twelve  and  a  half  per 
cent  ad  valorem  was  levied,  were  to  be  subjected  to  a  duty 
of  a  dollar  and  a  half  per  barrel  for  the  former,  and  a 
dollar  per  quintal  for  the  latter.  A  duty  of  three  cents  a 
pound  on  starch,  and  four  cents  a  pound  on  hair-powder 
and  glue,  was  charged  in  lieu  of  the  present  duty  of 
fifteen  per  cent  ad  valorem.  On  calicoes  and  gunpowder 
the  duty  was  raised  from  twelve  and  a  half  to  fifteen  per 
cent.  The  duties  exacted  on  tarred  cordage  and  cables, 
of  a  dollar  and  eighty  cents  per  hundred,  and  on  untarred 
cordage,  two  dollars  and  a  quarter,  were  changed  to  two 
cents  per  pound  on  the  former,  and,  on  the  other,  half  a 
cent  more. 

The   report   of   the    committee    was   adopted.      By  so 


isio.]  TAXATION    OF   IMPORTS.  85 

doing  was  signified  the  desire  of  Congress  to  encourage 
the  development  and  growth  of  home  industries,  —  to 
continue  that  "  sound  policy,"  which,  in  the  language  of 
the  preceding  committee  of  commerce  and  manufactures, 
pointed  to  the  necessity  of  granting  governmental  aid  for 
the  protection  of  such  manufactures  as  were  obviously 
capable  of  affording  the  United  States  an  adequate  supply 
of  their  several  and  respective  objects,  either  by  admitting 
free  of  duty  the  raw  articles  essential  to  their  manufac- 
ture, and  which  could  not  be  procured  in  the  United 
States,  or  by  imposing  a  higher  duty  than  was  paid  on 
those  articles  which  our  citizens  were  not  able  to  manu- 
facture.^ 

It  may  be  remarked,  that,  beside  the  protection  thrown 
over  the  manufacturing  interest  by  Congress  during  this 
period,  the  wars  which  raged  in  Europe  produced  a  favor- 
able effect.  American  commerce  rode  the  waves  of  an  un- 
expected and  brilliant  prosperity.  As  the  United  States 
was  a  neutral  nation,  she  fattened  on  the  miseries  of 
the  European  nations,  and  her  commerce  increased  with 
astonishing  rapidity.  She  excited  the  envy  and  jealousy 
of  the  English  Government,  whose  commerce  was  rapidly 
diminishing.  To  her  this  was  the  most  bitter  part  of  the 
cost  to  subdue  Napoleon.  Our  manufactures  flourished 
from  the  same  cause,  though  not  to  a  corresponding  de- 
gree with  our  commerce.^ 

Notwithstanding    these     favoring    circumstances,    the 

1  Mitchell's  Report,  Jan.  25,  1804,  2  Finance,  p.  80. 

2  Memorial  to  Congress  of  N.  Y.  Convention  of  Dom.  Industry,  Janu- 
ary, 1833.  Memorial  to  Congress  of  Lewis  Sanders  and  others,  Jan.  22, 
1811,  2  Finance,  p.  465.  Gallatin's  Report  on  Manufactures,  April  19,  1810, 
2  Finance,  p.  425. 


86         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1788. 

early  impediments  with  which  American  manufacturers 
contended  were  very  great.  There  was  a  lack  of  work- 
men, especially  of  those  possessing  much  skill.  Wages 
usually  were  high,  and  machinery  could  not  be  easil}''  pro- 
cured. Foreign  manufacturers  were  wide  awake  to  the 
determination  of  keeping  all  machinery  from  the  country 
that  would  enable  us  to  manufacture  at  better  advantage. 
In  1787  two  carding  and  spinning  machines,  which  were 
in  the  possession  of  a  person  in  Philadelphia,  and  "  which 
were  calculated  to  save  the  labor  of  no  less  than  one  hun- 
dred and  twenty  workmen  daily,"  were  purchased  by  the 
agency  of  a  British  artisan,  packed  in  cases  as  common 
merchandise,  and  sent  to  Liverpool.  The  object  of  pur- 
chasing these  machines  was  to  get  them  away.^  The 
hostility  to  American  manufacturing  was  manifested  in 
another  way  during  the  same  period.  Experiments  were 
then  rife  for  introducing  the  cotton-plant  into  the  coun- 
try. Whether  the  English  manufacturer  at  that  early  day 
foresaw  the  adaptation  of  the  plant  to  the  climate  and  soil, 
we  do  not  know ,  but,  with  the  vain  hope  of  destroying 
its  cultivation,  and  preventing  its  manufacture,  a  consid- 
erable quantity  of  cotton-seed  was  purchased  and  burned 
in  Virginia  by  a  British  agent.^  The  same  spirit  contin- 
ued for  years,  and  was  exhibited  in  many  unexpected  and 
exasperating  ways  to  the  American  manufacturer.^ 

1  Am.  Museum,  vol.  iv  p  342. 

2  Ibid.,  p.  345.    Niles,  vol.  x.  pp.  322,  323. 

3  "It  seems  that  two  machines  for  spinning  and  carding  were  with 
much  diflficulty  obtained  in  this  country  at  Philadelphia  as  early  as  1788. 
.  .  .  The  English  prohibited  the  export  of  the  cotton-machinery,  as  well  as 
the  emigration  of  their  mechanics,  under  such  penalties  as  delayed  the 
introduction  of  it  here,  and  caused  the  price  of  machinery  for  many  years 


1789.]  TAXATION    OF    IMPOETS.  81 

At  first,  duties  were  both  specific  and  ad  valorem.    Botli 
kinds  have  been  levied  during  the  greater  period  of  our 
history,  but  on  several  occasions  the  current  has  run  more 
strongly  toward  one  system  than  the  other.     Hamilton,  in 
the  last  communication  he  ever  made  to  the  House,  favored 
the  contraction  of  the  ad  valorem  system,  and  the  exten- 
sion of  specific  duties.      The  reason  for  the  change,  he 
declared,  was  obvious.     "  It  is  to  guard  against  evasions, 
which  infallibly  happen,  in  a  greater  or  less  degree,  where 
duties  are  high.     It  is  impossible  for  the  merchants  of  any 
country  to  have  manifested  more  probity  than  those  of  the 
United  States  on  this  subject,  and  it  is  firmly  believed  that 
there  never  was  one  in  which  illicit  practices  to  the  disad- 
vantage of  the  revenue  have  obtained  so  little,  hitherto,  aS' 
in  this ;  yet  it  would  be  a  delusive  expectation,  that,  with 
duties  so  considerable  as  those  which  now  exist,  a  dispo- 
sition will  not   be  experienced  in  some  individuals  who 
carry  on  our  import  trade  to  evade  the  payment  of  them, 
and  this  to  an  extent  sufficient  to  make  it  prudent  to 
guard  with  circumspection,  and  by  every  reasonable  pre- 
caution, against  the  success  of  such  attempts."  ^    Hamilton 
offered   to  "digest   the  details  of   a   plan   for  this   pur- 
pose , "    but,   resigning   shortly   afterward,   the   bill   was 
never  drawn,  and  so  the  old  system,  constantly  modified, 
was  continued. 

As  soon  as  the  tariff-law  was  passed,  it  was  necessary 
to  provide  for  the  collection  of  the  duties  imposed.     The 

to  be  so  high  here  as  to  retard,  and  almost  defeat,  successful  competition." 
—  Sec.  Woodbury,  Report  on  Cotton,  March  4,  1836,  No.  146,  24  Cong.,  arst 
session,  p.  57. 

1  Works  of  Hamilton,  vol.  iii.  p.  529. 


88         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1789. 

principal  officers  for  collecting  the  revenues  were  divided 
into  three  classes,  —  collectors,  naval  officers,  and  survey- 
ors. The  States  were  divided  into  districts :  and  some 
of  the  ports  were  designated  as  places  where  goods  might 
be  entered  and  delivered ;  at  other  ports  there  could  be 
only  a  delivery  of  goods.  To  every  district  a  collector 
was  appointed ,  to  many  of  them  a  surveyor  was  added  , 
but  a  naval  officer  was  attached  only  to  a  few.  At  those 
ports  where  the  three  officers  were  appointed,  it  was  the 
duty  of  the  collector  to  receive  all  reports  and  other  docu- 
ments given  to  him  by  the  commander  of  any  vessel,  and 
to  make  a  record  of  them ;  to  receive  the  entry  of  all  ves- 
sels and  merchandise,  with  the  invoices  thereof ;  to  esti- 
mate the  duties  payable  thereon,  to  receive  the  money 
paid  for  them,  and  to  take  the  bonds  for  securing  their 
payment ,  to  grant  permits  for  the  unloading  and  delivery 
of  goods,  and  to  employ  proper  persons  as  weighers,  gan- 
gers, measurers,  and  inspectors  at  the  several  ports  within 
his  district.  He  was  also  to  provide  at  public  expense, 
and  with  the  approval  of  the  principal  officers  of  the  treas- 
ury deparment,  storehouses  for  the  safe-keeping  of  goods. 
The  naval  officer  was  required  to  receive  copies  of  all 
manifests,  to  estimate  and  record  the  duties  on  each  entry 
made  with  the  collector,  and  to  correct  any  error  therein, 
before  a  permit  to  unload  or  deliver  was  granted.  The 
duties  of  the  survej'or  were  more  extensive.  He  was 
required  to  superintend  and  direct  all  inspectors,  weigh- 
ers, measurers,  and  gangers,  and  the  employment  of  the 
boats  which  might  be  provided  for  securing  the  collection 
of  the  revenue ;  to  place  on  board  every  vessel,  as  soon  as 
.it  arrived,  an  inspector  to  rate  the  distilled  spirits  forming 


1789.]  TAXATION    OF    IMPORTS.  89 

the  cargo,  and  to  ascertain  whether  the  goods  imported 
were  comformable  to  the  entries  made  of  them.  The 
surveyor  was  always  the  servant  of  the  collector  and 
naval  officer.  When  a  collector  only  was  assigned  to  a 
port  or  district,  as  was  the  case  generally,  he  performed 
the  duties  of  naval  officer  and  surveyor ;  and,  when  a  col- 
lector and  surveyor  were  assigned,  the  former  performed 
the  duties  of  naval  officer.  The  collection  of  duties  was 
to  begin  the  fifteenth  day  of  August,  1789,  and  on  ton- 
nage fifteen  days  afterward.^ 

As  the  law  for  collecting  them  did  not  pass  until  July, 
it  was  impossible  to  appoint  and  commission  all  the  reve- 
nue officers  in  time  for  them  to  put  the  law  in  operation 
on  the  day  prescribed.  The  custom-houses  were  organ- 
ized in  the  several  States  during  the  months  of  August 
and  September,  and  in  the  interval  a  number  of  impor- 
tations occurred.  In  some  instances  duties  were  paid 
under  State  laws :  in  other  cases  none  were  paid. 

Hamilton  considered  that  duties  accrued  on  all  impor- 
tations after  the  day  specified  for  their  collection.  A 
claim  for  them  was  made  with  a  view  of  getting  a  legal 
decision  thereon.  Nevertheless,  he  questioned  the  expe- 
diency of  collecting  duties  on  merchandise  which  had 
been  thus  imported.  The  enforcement  of  the  claim,  he 
thought,  might  be  regarded  rigorous,  and  in  some  cases 
injurious,  especially  when  goods  had  been  sold  without 
reference  to  the  duty.^  Besides,  it  would  not  be  easy  to 
ascertain  what  ought  to  be  paid.  His  opinions  were 
shared  by  Congress,  and  accordingly  it  was  enacted  that 

1  Act,  July  31,  1789, 1  Cong.,  first  session,  chap.  5. 

2  Works,  vol.  iii.  pp.  54,  55. 


90         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1789. 

all  duties  which  had  accrued  between  the  15th  of  August 
and  the  time  when  each  collector  entered  his  office 
should  be  remitted,  and,  if  any  one  had  paid  duties  to 
the  government  during  that  period,  restitution  should  be 
made. 

In  executing  the  law,  collectors  at  first  followed  the 
regulations  which  had  previously  been  adopted  by  the 
States ;  but  Hamilton,  notwithstanding  the  variety  and 
difficulty  of  his  labors,  soon  established  a  system  of  rules 
for  their  guidance.  The  collectors  were  required  to  ren- 
der a  weekly  account  of  their  receipts  and  expenditures 
to  the  treasurer,  to  report  the  defects  which  should  be 
discovered  in  executing  the  law,  and  to  make  full  returns 
of  the  work  of  their  offices.  Bonds  taken  for  duties,  if 
not  paid  as  stipulated,  were  to  be  put  immediately  in 
suit :  indeed,  "  the  most  exact  punctuality  would  be  con- 
sidered indispensable."  "  Resolutions,"  Hamilton  added, 
"  under  State  laws,  may  give  an  air  of  rigor  to  this  in- 
struction." But  he  regarded  its  strict  observance  essen- 
tial, "  not  only  to  the  order  of  the  finances,  but  even  to 
the  propriety  of  the  indulgence  which  the  law  allowed 
of  procrastinated  terms  of  payment  of  duties."  Indeed, 
very  complete  instructions  were  given  to  the  collectors 
to  guide  them  in  performing  their  untried  duties.^ 

It  was  not  expected  that  the  law,  prepared  with  so 
much  necessary  haste,  would  operate  perfectly.  Defects 
soon  began  to  appear.  These  were  afterwards  made 
known  to  Congress  by  Hamilton.  At  the  next  session 
most  of  the  provisions  were  repealed  ,  and  another  law  was 
passed,  which  continued  in  force  until  1799,  when  a  still 
1  Hamilton's  Hist,  of  Repub.,  vol.  iv.  pp.  39-41. 


1800.]  TAXATION    OF    IMPORTS.  91 

more  elaborate  statute  was  enacted,  which  has  served  as 
the  groundwork  of  all  subsequent  legislation.^ 

For  many  years  Gallatin  affirmed,  that,  notwithstand- 
ing the  gradual  increase  of  duties,  they  were  faithfully 
paid,  and  that  the  frauds  so  often  committed  on  the  fair 
trader  and  the  public,  in  countries  where  a  large  revenue 
was  derived  from  customs,  were  comparatively  few  in  the 
United  States.  The  whole  amount  of  fines  and  forfeit- 
ures incurred  for  a  period  of  five  years  and  a  half,  for 
breaches  of  the  revenue  laws,  which,  during  the  same 
time,  had  yielded  a  net  revenue  of  -$17,000, 000,  did  not 
much  exceed  $9,000.  Tea,  however,  formed  an  excep- 
tion, as  the  consummation  for  the  years  1793  and  1794  was 
only  one-half  as  great  as  for  the  two  previous  years.  The 
temptation  offered  by  the  high  duty  and  the  small  bulk 
of  the  article  pointed  out  the  true  remedy  j  namely,  a 
decrease  of  the  duty.^ 

At  a  later  period  it  was  remarked  by  a  committee  of 
Congress,  that  the  duties  on  wines  had  been  so  injudi- 
ciously laid  as  to  produce  a  strong  temptation  to  enter 
high-priced  wines,  which  paid  a  very  high  duty,  under 
the  names  of  low-priced  ones,  paying  a  dut}-  compara- 
tively low.     This  fraud  had  been  extensively  practised.^ 

When  the  new  government  had  been  in  operation 
twenty  years,  a  very  interesting  and  instructive  report 
was  made,  concerning  "  the  principles  and  practice " 
adopted  by  the  treasury  department   in    "mitigating   or 

1  Act,  March  2,  5  Cong.,  third  session,  chap.  22. 

2  Writings  of  Gallatin,  a-o1.  iii.  p.  82. 

3  Harper's  Report  on  Additional  Revenues,  April  30,  1800,  1  Finance, 
p.  642. 


92         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1813. 

remitting "  the  fines,  penalties,  and  forfeitures  incurred 
under  the  revenue  laws.  Congress  had  confided  to  the 
secretary  of  the  treasury  a  very  broad  and  delicate 
authority  in  the  matter,  which,  happil}^  had  been  "  used 
in  a  manner  liberal  and  just."  He  was  vested  with 
power  to  mitigate  or  remit  a  fine,  forfeiture,  or  penalt}*, 
or  to  remove  the  disability,  or  any  part  thereof,  if  in  his 
opinion  it  had  been  incurred  without  wilful  negligence 
or  any  intention  of  fraud,  and  to  direct  prosecutions  to 
cease  on  such  conditions  as  he  deemed  reasonable  and 
lust.  To  obtain  the  benefit  of  this  law,  however,  it  was 
necessary  to  have  the  facts  in  every  case  determined  by 
a  judge  of  a  district  court  of  the  United  States,  who  then 
transmitted  the  record  to  the  secretary  of  the  treasury 
for  his  decision. 

In  exercising  his  authority,  Gallatin  declared,  that,  in 
deciding  those  cases  to  which  the  power  of  remitting  in 
whole  or  in  part  applied,  and  in  graduating  the  amount 
of  penalty  in  those  where  it  appeared  improper  to  grant 
an  unqualified  remission,  he  had  been  invariably  gov- 
erned by  the  following  principles :  first,  enforcing  the 
laws ;  second,  reducing  the  penalty  to  that  amount,  and 
requiring  only  that  portion  which  appeared  sufficient  for 
the  purpose  of  preventing  infractions  ;  and,  third,  uniform 
rules  of  decision,  so  far  as  the  diversity  of  cases  rendered 
them  practicable.  In  applying  these  principles  to  individ- 
ual cases,  several  circumstances  were  considered,  —  the 
degree  of  negligence  manifested  by  the  party,  the  impor- 
tance for  the  safety  of  the  revenue  of  the  particular  pro- 
vision which  had  been  infringed,  the  encouragement  due 
to  the  vigilance  of  the  officers,  and,  when  necessary  for 


1813.]  TAXATION    OF   IMPORTS.  93 

the  purpose  of  cliecking  illegal  importations,  the  profit 
derived  from  the  transaction.  But  the  gain  to  the  treas- 
ury had  never  influenced  him,  or  "  even  been  thought  of,"' 
in  making  a  decision. 

The  number  of  cases  decided  by  Gallatin  was  twelve 
hundred  and  ninety-seven.  In  ninety-two  of  these,  he 
decided  there  was  an  intention  to  defraud  the  govern- 
ment, and  no  remission  was  granted.  Absolute  remission 
had  been  granted  in  eight  hundred  and  eighty-eight  cases, 
generally  on  payment  of  costs,  and  in  three  hundred  and 
seventeen  cases  the  fines  had  been  mitigated.  In  about 
two-thirds  of  these,  nothing  more  had  been  inflicted  than 
the  payment  of  sums,  generally  inconsiderable,  which 
were  given  to  the  custom-house  officers.  The  expenses 
incurred  in  prosecuting  for  offences  against  the  revenue 
laws  considerably  exceeded  the  amount  actually  ^recov- 
ered, and  paid  into  the  treasury.  Those  penalties,  there- 
fore, had  not  been  a  source  of  revenue.^ 

Individuals  were  constantly  applying  to  Congress  for 
remission  of  duties  in  cases  not  provided  by  law,  but  in 
the  collection  of  which  it  was  urged  some  peculiar  hard- 
ships would  be  sustained.  In  one  case,  a  large  amount 
of  goods  had  been  landed  in  New  York,  and  a  fire  had 
occurred,  destroying  the  warehouse  and  its  contents. 
Applications  were  founded  on  a  great  variety  of  circum- 
stances too  numerous  to  describe.  Not  infrequently, 
when  the  secretary  had  decided  against  an  applicant  for 
the  remission  of  a  fine  or  forfeiture.  Congress  was  asked 
to  grant  relief.  Cases  of  this  character  were  so  numer- 
ous, that  the  reader  may  be  led  to  ask,  Why  was  not  a 

1  Quincy's  Report  on  Fines,  etc.,  Feb.  27,  1813,  2  Finance,  p.  615. 


94         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.        [1790. 

proper  tribunal  instituted  for  disposing  of  them,  instead 
of  dividing  the  power  and  responsibility  between  the 
secretary  of  the  treasury  and  Congress?  Surely,  the 
creation  of  an  adequate  tribunal,  composed  either  of 
existing  officials  or  of  other  persons,  would  have  relieved 
Congress  and  the  secretary  of  the  treasury  from  tlie 
performance  of  a  duty  which  could  have  been  more  sat- 
isfactorily performed  than  it  had  been. 

Applications  were  often  made  to  Congress  to  grant 
relief  to  those  who  had  given  bonds  to  secure  the  pay- 
ment of  duties.  This  was  more  especially  the  case  with 
those  who  had  become  sureties.  In  another  class  of  cases, 
the  applicants  sought  to  obtain  a  drawback.  Such  cases 
were  very  frequent. 

In  the  beginning,  Congress  provided  that  all  duties  on 
imported  merchandise,  except  brandy  and  geneva,  which 
was  re-exported,  should  be  returned  within  a  specified 
time.  One  per  cent  of  the  duties,  however,  was  retained 
to  cover  the  expense  of  entering  and  storing  such  mer- 
chandise. With  respect  to  salted  fish  and  provisions,  the 
law  provided  an  allowance  "  in  lieu  of  a  drawback  of  the 
duties  imposed  on  the  importation  of  the  salt  emplo3'ed 
and  expended  therein."  A  glaring  defect  in  the  law  was 
soon  discovered.  A  vessel  arriving  from  a  foreign  port, 
with  a  portion  of  her  cargo  destined  for  the  United  States, 
was  obliged  to  pay  duties  on  the  whole,  and  even  to  land 
those  articles  which  required  weighing,  measuring,  or 
gauging,  in  order  to  ascertain  the  duties.  Nor  did  the 
allowance  of  drawbacks  obviate  the  difficulty.^     This  was 

1  Sec.  Hamilton's  Report  on  the  Operations  of  the  Act  laying  Duties  on 
Imports,  April  23,  1790. 


1790.1  TAXATION    OF   IMPORTS.  95 

a  very  serious  defect  in  the  law,  but,  like  other  defects, 
could  not  be  remedied  until  the  next  session  of  Congress, 
when  the  law  was  thoroughly  revised.^ 

The  original  design  of  the  law  for  raising  a  revenue  on 
imports  was  to  tax  consumption,  and  the  allowance  of  a 
drawback  was  to  favor  trade.^  In  his  famous  report  on 
manufacturing,  Hamilton  recommended  the  exemption 
from  duty  of  nearly  all  materials  employed  in  manufac- 
tures. To  this  rule,  he  remarked,  there  should  be  some 
exceptions.  Three  examples,  illustrating  three  classes  of 
exceptions,  were  given.  In  the  first  example,  the  material 
itself  was  extensively  consumed,  and  consequently  a  fit 
and  productive  source  of  revenue.  Such  a  commodity  was 
molasses.  It  was  "just  that  the  consumers  of  it  should  pay 
a  duty,  as  well  as  the  consumers  of  sugar."  Another  excep- 
tion was  that  of  a  manufacture  the  competition  of  wliich 
with  a  similar  domestic  article  it  was  desirable  to  restrain. 
The  manufacture  itself  partook  of  the  nature  of  a  raw 
material,  and,  by  a  further  process,  could  be  converted 
into  a  manufacture  of  a  different  kind,  the  introduction 
or  growth  of  which  it  was  desirable  to  encourage.  Cot- 
tons and  linens  in  their  white  state  fell  under  this  descrip- 
tion. A  duty  on  those  imported  was  proper  to  promote 
the  domestic  manufacture  of  similar  articles  in  the  same 
state.  A  drawback  of  that  duty  was  equally  proper  to 
encourage  the  printing  and  staining  at  home  of  those 
which  were  brought  from  abroad.  When  the  first  of  those 
manufactures  had  attained  sufficient  maturity  to  furnish 
a  full  supply  for  the  second,  the  utility  of  the  drawback 

1  Act,  Aug.  4,  1790,  1  Cong.,  second  session,  chap.  35,  sect.  18. 

2  Tracy's  Report  on  Drawback,  Feb.  19,  1802,  1  Finance,  p.  733. 


96         FINANCIAL  HISTOIIY  OF  THE  UNITED  STATES.        [1800. 

ceased.  A  third  exception,  he  contended,  should  be 
made,  when  the  material  itself  was  produced  in  sufficient 
abundance  here  to  furnish  a  cheap  and  plentiful  supply 
to  the  manufacturer  requiring  it.  Hemp  either  did  or 
was  soon  expected  to  exemplify  a  commodity  of  this  class. 

Hamilton  further  remarked,  that,  when  duties  on  the 
materials  of  manufacture  were  not  laid  for  the  purpose 
of  preventing  competition  with  some  domestic  production, 
the  same  reasons  which  recommended,  as  a  general  rule, 
the  exemption  of  those  materials  from  duties,  would 
recommend  the  allowance  of  a  drawback  in  favor  of  the 
manufacturer.  Accordingly,  such  drawbacks  were  famil- 
iar to  countries  which  systematically  pursued  the  business 
of  manufactures,  which  furnished  an  argument  for  the  ob- 
servance of  a  similar  policy  in  the  United  States ;  and  the 
idea  had  been  adopted  by  the  laws  of  the  Union  in  respect 
to  salt  and  molasses.  Hamilton  believed  that  the  same 
principle  could  be  beneficially  extended  to  other  articles.^ 

Several  years  afterward,  when  more  revenue  was  want- 
ed, the  secretary  of 'the  treasury,  Wolcott,  recommended 
a  tax  on  drawbacks.  The  committee  of  ways  and  means 
considered  the  expediency  of  the  measure.  War  was 
then  raging  in  Europe;  and  it  was  contended,  on  the 
one  hand,  that,  if  such  a  tax  were  laid,  it  would  not  rest 
on  our  commerce  or  merchants,  but  on  foreign  nations, 
who  were  the  consumers  of  the  re-exported  commodities. 
While  the  war  continued,  they  would  certainly  be  obliged 
to  purchase  them  from  America  alone,  and  would  be 
under  the  necessity  of  repaying  the  tax,  in  addition  to 
the  price  which  otherwise  would  be  demanded. 

1  Eeport  on  Manufactures. 


1800.]  TAXATION   OF   IMPORTS.  97 

To  this  reasoning  it  was  answered,  that  the  whole 
argument  rested  on  the  supposition  of  our  ability  to 
effect  two  things,  both  of  which  were  very  uncertain : 
namely,  to  monopolize  the  business  of  supplying  the 
countries  in  question  with  East  and  West  India  and 
China  commodities,  and  "to  compel  those  commodities 
to  touch  first  at  our  own  ports,  before  they  were  carried 
to  the  places  where  they  were  consumed ; "  for  it  was 
clear,  that  if,  by  raising  the  price  of  the  commodities, 
we  should  raise  up  competitors  who  could  underbid  us 
in  the  foreign  markets,  or  should,  by  taxing  them  when 
they  arrived  at  our  own  ports,  lead  our  merchants  to 
carry  them  directly  from  the  places  of  their  production 
to  the  places  where  they  were  consumed,  without  landing 
them  in  this  country,  —  in  either  case  the  duty  would  be 
lost :  in  the  first,  by  ruining  altogether  our  trade,  whereon 
the  duty  must  depend;  and,  in  the  second,  by  turning  the 
trade  away  from  our  own  ports,  where  alone  the  duty 
could  be  collected.  A  duty  of  two  and  one-half  per  cent, 
which  was  the  figure  proposed,  would  amount  to  a  large 
sum  on  a  valuable  cargo,  and  was  a  sufficient  premium 
to  tempt  the  avoiding  of  American  ports.  The  committee 
made  no  recommendation,  but  Congress  tried  the  experi- 
ment.^ The  duty  imposed  was  two  and  one-half  per  cent, 
in  addition  to  half  that  sum  previously  exacted  for  enter- 
ing and  storing  such  goods ,  but,  if  they  were  re-exported 
in  the  foreign  vessels  which  imported  them,  the  draw- 
back previously  allowed  was  withheld.^ 

1  Harper's  Report  on  Additional  Revenues,  April  30,  1800,  1  Finance, 
p.  642. 

2  Act,  May  13,  1800,  6  Cong.,  first  session,  chap.  64. 


98         FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1793. 

Another  defect  early  appeared  in  the  law  relating  to 
this  subject.  Goods  were  brought  into  the  United  States, 
and  then  re-exported  to  a  foreign  port  adjacent  to  the 
dominion  of  tliis  country.  As  the  drawback  was  allowed 
when  they  were  taken  away,  and  they  could  be  easily 
returned  after  re-exportation  without  the  payment  of  a 
duty,  the  government  was  defrauded  of  the  revenues  to 
which  it  was  fairly  entitled.  This  defect  was  partly 
corrected  by  the  law  of  1799.^ 

Manufacturers  were  constantly  trying  to  obtain  more 
favorable  legishition  in  the  way  of  drawbacks  on  imported 
dutiable  merchandise  used  in  the  manufacture  of  otlicr 
articles  which  they  desired  to  export.  Cordage  was  one  of 
tlie  thinsrs  which  secured  much  attention  from  Concrress. 
III  1793  it  had  been  exported  in  considerable  quantities, 
but  later  a  duty  of  twenty  dollars  per  ton  was  levied 
on  foreign  hemp.  Of  course,  the  levying  of  so  heavy 
a  duty  on  the  raw  material  was  a  serious  detriment  to  the 
American  manufacturer.  But  it  did  not  appear  expedient 
to  Congress,  either  to  increase  the  duty  on  the  imported 
article,  or  to  discontinue  the  allowance  of  the  drawback 
on  the  re-exportation  of  foreign  manufactured  cordage : 
Congress  therefore  devised  another  remedy ,  namely,  the 
payment  to  American  manufacturers  of  a  certain  sum 
on  all  cordage  exported,  as  equivalent  to  the  duty  on 
hemp.2     The  same  remedy  was  applied  to  other  things. 

Still  the  cordage  manufacturers  were  not  satisfied. 
The}'  wanted  either  a  discontinuance  of  the  drawback  on 

1  Act,  March  2,  5  Cong.,  third  session,  chap.  22,  sect.  75. 

2  Bourne's  Report  on  Drawback  on  Cordage,  Feb.  7,  1793,  1  Finance, 
p.  202. 


1793.]  TAXATION   OF   IMPORTS.  99 

foreign  cordage  when  exported,  or  an  allowance  of  a  draw- 
back on  the  exportation  of  home-made  cordage  equal  to 
the  dut}^  imposed  on  hemp.  There  were  two  grave  diffi- 
culties in  the  \ydy  of  granting  such  relief.  The  first  was 
the  contravention  of  the  general  principle  adopted  by  the 
government  of  allowing  drawbacks  on  the  exportation 
of  imports :  the  other  difficulty  was  the  distinguishing  of 
cordage  made  of  American  hemp  from  that  made  of  the 
foreign  material.  These  objections  were  subsequently 
made  to  similar  applications  of  soap  and  candle  manu- 
facturers. 

Sugar-refiners  frequently  applied  to  Congress  for  simi- 
lar assistance,  which  was  desired  for  the  same  reason, 
chiefly,  that  was  given  by  the  cordage,  soap,  and  other 
manufacturers.  Tlie  duty  collected  from  this  source  has 
always  been  so  large  as  to  warrant  our  describing  the 
manner  in  which  the  government  allowed  drawbacks  when- 
ever sugar  was  exported. 

At  first  a  duty  of  two  cents  a  pound  was  collected  on 
sugar  refined  within  the  United  States.  A  similar  duty 
was  allowed  as  a  drawback,  besides  three  cents  a  pound 
to  cover  the  duties  paid  on  importations.  When  this  reg- 
ulation was  made,  the  duty  on  crude  sugar  was  one  cent 
and  a  half  a  pound.  As  two  pounds  of  crude  sugar  were 
needed  to  make  one  pound  of  refined,  three  cents  per 
pound  were  allowed  on  exporting  the  refined  article ;  and 
to  this  were  added  the  two  cents  per  pound  paid  for  the 
excise,  the  duty  and  the  excise  thus  making  a  drawback 
of  five  cents  a  pound  allowed  in  the  beginning.  By 
subsequent  statutes,  the  duties  on  imported  sugar  were 
increased ;  but  there  was  a  corresponding  increase  of  draw- 


100      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1799. 

back.  When,  however,  the  internal  taxes  were  repealed 
in  1802,  the  drawback  on  refined  sugar,  then  amounting 
to  seven  cents  a  pound,  ceased. 

Notwithstanding  the  repeal  of  these  statutes,  the  refin- 
ing of  sugar  in  the  United  States  was  "  not  wholly  unpro- 
tected." At  one  time  sugar-candy,  or  crystallized  sugar, 
could  be  imported  from  Asia,  "  not  only  so  cheap  as  to  vie 
with  tlie  West-India  brown,  but  even  to  be  substituted,  in 
many  cases,  for  refined  sugars  in  the  markets  of  the  United 
States."  The  merchants  who  could  have  bought  great 
quantities  of  this  "  elegant  form  of  sugar  "  were  inter- 
rupted in  their  trade  by  the  imposition  of  a  duty  of  nine 
cents  a  pound,  which,  three  years  afterwards,  was  increased 
two  cents  and  a  half  per  pound  more.  "  Thus,  to  protect 
the  domestic  refiners  of  sugar,  the  merchants  who  traded 
to  the  East  Indies  were  prohibited  from  bringing  sugar- 
candy  to  the  United  States,  and  the  citizens  at  home  from 
consuming  it,  but  at  the  enormous  price  paid  for  it  as  a 
dainty,  a  medicine,  or  a  rarity."  ^ 

Nor  was  Congress  unmindful  of  "  encouraging  the  do- 
mestic sugar-refinery."  By  various  Acts,  a  duty  amount- 
ing to  nine  cents  a  pound  was  imposed  on  foreign  refined 
loaf-sugar,  and  six  cents  and  a  half  per  pound  on  all  other 
refined  sugars.  In  1799  Congress  refused  to  grant  a 
drawback  on  the  exportation  of  imported  loaf  and  lump 
sugars  refined  abroad,  and  forbade  the  importation  of  it 
in  vessels  of  less  burthen  than  one  hundred  and  twenty 
tons,  and   in  parcels  of  less  than  six  hundred   pounds. 

1  Mitchell's  Report  on  Drawback,  Dec.  20,  1803,  2  Finance,  p.  74;  and 
Crowninshield's  Report  on  Drawback  on  Refined  Sugar,  Jan.  21,  1805,  2 
Finance,  p.  116. 


1805.]  TAXATION    OF    IMPORTS.  101 

These  heavy  viuties  effected  an  almost  total  prohibition 
of  foreign  refined  sugars.^ 

The  domestic  refiners,  nevertheless,  strenuously  sought 
to  obtain  a  drawback  on  the  exportation  of  their  own 
product.  There  were  two  difficulties  in  the  way,  spring- 
ing from  the  acquisition  of  Louisiana.  The  first  was,  that 
a  large  amount  of  sugar  was  prepared  and  exported  annu- 
ally from  New  Orleans  and  vicinity,  and  it  was  regarded 
as  unreasonable  to  allow  a  drawback  on  sugar  which  had 
never  paid  a  duty :  the  other  difficulty  was,  that  a  sugar- 
refinery  had  been  established  at  New  Orleans,  where 
others  were  likely  to  be  established.  To  accomplish  the 
object  which  the  sugar-refiners  had  in  view,  it  was  de- 
clared necessary  to  prohibit  the  importation  of  refined 
sugar  into  Louisiana ;  and,  to  avoid  paying  a  drawback 
on  sugar  that  had  never  paid  duties,  it  would  also  be 
necessary  to  distinguish  the  sugars  of  Louisiana  from  those 
of  foreign  production. 

The  sugar-refiners  often  renewed  their  demand,  but  in 
vain.  Indeed,  a  rejjort  of  the  committee  on  commerce 
and  manufactures,  made  during  the  session  of  1805,  shows 
that  the  current  had  set  strongly  against  the  sugar-refiners. 

Occasionally  Congress  discovered  that  the  duties  were 
so  high  as  to  check  importations.     When  cocoa,  for  exam- 

1  A  committee  of  Congress  who  reported  on  this  subject  said,  "  Sugar- 
candy  and  loaf-sugar  from  abroad  are  loaded  with  such  heavy  duties,  that 
their  prohibition  operates  as  a  bounty  on  the  domestic  manufacturers.  The 
duties  on  the  refined  sugar  consumed  at  home  are  paid  by  the  consumer; 
and,  to  protect  the  refiners  of  sugar  in  the  United  States,  government  has 
adopted  measures  that  have  considerably  lessened  the  revenue  on  that 
article,  and,  by  removing  foreign  competition,  enhanced  the  price  to  the 
domestic  consumer." 


102      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1797. 

pie,  was  first  taxed  in  1789,  the  duty  assessed  was  one 
cent  per  pound.  It  was  afterward  raised  to  two  cents, 
and  in  1794  the  duty  was  doubled.  The  latter  rate 
checked  importations.  The  revenue  received  from  the 
article  when  the  duty  was  two  cents  per  pound  was  as 
great  as  when  the  duty  was  doubled.  Adam  Smith's 
remark  was  again  verified,  that,  "in  the  arithmetic  of 
customs,  two  and  two  do  not  always  make  four."  The 
increased  duty,  therefore,  operated,  say  a  committee  who 
investigated  the  subject,  "  if  not  to  discourage  importation, 
to  produce  this  effect  by  causing  an  export  of  it  before 
manufactured."  Another  effect  of  the  high  rate  of  duty 
was  to  oppress  unreasonably  the  manufacture  of  chocolate 
without  benefiting  in  any  way  the  public  revenue.^ 

1  Swanwick's  Report  ou  Reductiou  of  Duties  on  Cocoa,  Feb.  8,  1797, 
1  Finance,  p.  4^. 


1790.]  INTERNAL   REVENUE.  103 


CHAPTER   VI. 

INTERNAL    REVENUE. 

When  Congress  convened  the  second  time,  every  mem- 
ber clearly  saw  the  necessity  for  increasing  the  revenue. 
From  what  source  should  the  new  supply  be  drawn? 
Hamilton  urged  an  increase  of  the  duties,  and  also  a  tax 
on  spirits  distilled  at  home.  The  latter  suggestion  was 
warmly  debated  in  Congress.  The  Middle  States  and  the 
East  favored  such  a  measure,  but  the  South  was  strongly 
opposed.  "  Grog  "  was  declared  to  be  "  a  necessary  arti- 
cle of  drink  in  the  Southern  States ; "  and  consequently 
"  this  mode  of  taxation  was  odious,  unequal,  unpopular, 
and  oppressive."  Some  members  regarded  the  measure 
as  an  invasion  of  the  rights  of  the  States.  Said  Jackson 
of  Georgia,  "  I  plainly  perceive  that  the  time  will  come 
when  a  shirt  shall  not  be  washed  without  an  excise."  ^ 
Another  objection  was  the  probable  unequal  operation 
of  the  law  in  the  different  sections  of  the  country. 
This  was  the  chief  objection  raised  by  the  people  of 
Pennsylvania  who  lived  west  of  the  Alleghanies.  Never- 
theless, the  bill  passed  the  House  by  a  vote  of  thirty-nine 
to  nineteen,  requiring  the  payment  of  a  duty  of  eleven 
cents  per  gallon  on  all  spirits  distilled  from  foreign  mate- 
rials, and  nine  cents  on  those  manufactured  from  domes- 

1  Annals  of  Congress,  vol.  ii.  pp.  1842,  1844. 


104      FINANCIAL  HISTORY  OF  THE  rNITED  STATES.       (1791. 

tic  materials.  Tlie  duties  were  higher  on  spirits  distilled 
from  foreign  materials,  because  they  possessed  greater 
value. 

For  the  purpose  of  collecting  these  revenues,  the  coun- 
try was  divided  into  districts,  and  a  supervisor  was 
appointed  for  each  district,  with  power  to  appoint  those 
who  should  have  the  charge  and  survey  of  the  distilleries 
witliin  it.  The  duties  were  to  be  paid,  or  a  bond  given 
for  their  pa3-ment,  previous  to  the  removal  of  spirits 
from  the  distilleries.  If  payment  were  made  before  such 
removal,  there  was  an  abatement  of  two  cents  for  every 
ten  gallons.  The  regulations  were  somewhat  different 
on  those  stills  not  located  in  "  a  city,  town,  or  village." 
There  was  "  a  yearly  duty  of  sixty  cents  for  every  gallon, 
English  wine  measure,  of  the  capacity  or  contents  of 
each  and  every  such  still,  including  the  head  thereof." 
If,  however,  the  distiller  were  aggrieved  by  paying  such 
rates,  he  was  permitted  to  keep  an  account  of  the  exact 
quantity  distilled,  and  of  the  quantity  sold  and  on  bond, 
and  the  duties  were  to  be  estimated  on  such  still,  "ac- 
cording to  the  quantity  so  stated  to  have  been  actually 
made  therefrom,  at  the  rate  of  nine  cents  per  gallon." 

The  law  was  passed  March,  1791 ,  ^  and  a  year  after- 
ward Hamilton  made  a  report  thereon,  in  obedience  to  an 
order  of  the  House.^  He  declared  that  several  objections 
had  been  raised  to  it,  that  it  contravened  the  principles 
of  liberty,  was  injurious  to  morals,  that  heavy  and  oppres- 
sive penalties  had  been  prescribed,  that  industry  was 
injuriously  affected  by  it,  and,  finally,  that  the  law  inter- 
fered with  the  business  of  distillincr. 

1  March  3,  1  Cong.,  third  session,  chap.  15.        2  "Works,  vol.  iii.  p.  297. 


1792.]  INTERNAL   REVENUE.  105 

All  these  objections  were  fully  answered.  "  There  can 
surely  be  nothing,"  says  Hamilton,  "  in  the  nature  of  an 
internal  duty  on  a  consumable  commodity,  more  incom- 
patible with  liberty,  than  in  that  of  an  external  duty  on 
a  like  commodity.  A  doctrine  that  asserts  that  all  duties 
of  the  former  kind  are  inconsistent  with  the  genius  of  a 
free  government  is  too  evident,  and  too  little  reconcila- 
ble with  the  necessities  of  society,  to  be  true.  It  would 
tend  to  deprive  the  government  of  what  is,  in  most  coun- 
tries, a  principal  source  of  revenue,  and,  by  narrowing 
the  distribution  of  taxes,  would  serve  to  oppress  par- 
ticular kinds  of  industry.  It  would  throw,  in  the  first 
instance,  an  undue  proportion  of  the  public  burden  on 
the  merchant  and  the  landholder." 

Excise  laws  were  generally  regarded  as  unfriendly  to 
liberty,  because  summary  and  discretionary  jurisdiction 
was  vested  in  the  officers  charged  with  executing  them, 
contrary  to  the  course  of  the  common  law.  But  this  ob- 
jection could  not  be  made  to  the  present  law.  No  indis- 
criminate power  to  search  and  inspect  had  been  conferred. 
No  house  or  building  could  be  searched  or  inspected 
which  had  not  been  previously  entered,  and  marked  by 
the  possessor  as  a  place  used  for  distilling  or  keeping 
spirits.  The  Act  was  supposed  to  injure  morals  by  re- 
quiring oaths  to  be  taken,  —  an  effect  which  Hamilton 
regretted.  But  then,  as  he  remarked,  they  were  gen- 
erally used  in  courts  of  justice.  It  was  remarkable,  he 
added,  that  both  kinds  of  security  to  the  revenue,  pro- 
vided by  the  Act,  —  the  oaths  of  parties,  and  the  inspec- 
tion of  offices,  —  found  opponents.  If  they  were  both 
abandoned,   it  was   not   easy  to   imagine    what   security 


106      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1792. 

there  could  be  for  any  species  of  revenue  collected  from 
articles  of  consumption. 

Some  distillers  suggested  that  the  revenue  might  be 
more  satisfactorily  collected  by  having  a  fixed  rate  of 
duty,  "  adjusted  according  to  a  ratio  compounded  of  the 
capacity  of  each  still,  and  the  number  and  capacities  of 
the  cisterns  employed  with  it ; "  but  this  method  found 
many  objectors,  who  contended  that  it  would  operate 
unequally,  arising  from  unequal  supplies  of  the  materials 
at  different  times  and  places,  and  also  from  the  different 
methods  of  distillation  practised,  and  from  the  varying 
degrees  of  activity  in  the  business  resulting  from  the  capi- 
tal emplo3'ed.  Hamilton  declared  that  the  result  of  his 
examination  was,  that  every  mode  suggested  in  cases  in 
which  the  business  was  conducted  upon  an  extensive 
scale  would  be  attended  with  many  inequalities,  and 
upon  the  whole  would  be  less  satisfactory  than  the  plan 
which  had  been  adopted. 

Tlius  did  Hamilton  meet  one  objection  after  another, 
until  he  had  gone  over  the  whole  field  of  dispute.  His 
answer  to  one  more  objection  may  be  given,  before  closing 
our  review  of  his  report.  It  was  claimed  that  the  duty 
ought  to  have  been  laid  in  the  beginning  on  the  con- 
sumer, and  not  on  the  distiller ;  because  under  the  mode 
adopted  a  larger  capital  was  necessary  to  carry  on  the 
business,  and  in  the  country,  where  capital  was  not 
large,  distillers  were  placed  at  a  disadvantage.  This 
inconvenience,  the  secretary  replied,  was  obviated  by  the 
credits  given  to  them  in  paying  their  duties.  On  the 
other  hand,  the  collection  of  the  duty  from  the  distiller 
had   several    advantages.     It   contributed  to  equality  by 


1793.]  INTERNAL   REVENUE.  107 

charging  the  article  in  the  first  stage  of  its  progress, 
which  diffused  the  duty  among  all  classes  alike.  It  bet- 
ter secured  the  collection  of  the  revenue  by  confining 
the  responsibility  to  a  smaller  number  of  persons,  and 
simplifying  the  process.  It  avoided  the  necessity  of  so 
great  a  number  of  officers  as  would  be  required  in  a  more 
diffuse  system  of  collection,  operating  immediately  on 
purchasers  and  consumers.  Besides,  Hamilton  contend- 
ed, such  a  plan  would  transfer  whatever  inconveniences 
might  be  incident  to  the  collection  from  a  smaller  to  a 
greater  number  of  persons. 

Although  the  excise  finally  imposed  was  two  cents  less 
per  gallon  than  was  collected  by  the  State  of  Pennsylva- 
nia just  before  adopting  the  constitution,  the  inhabitants 
of  the  western  part  of  the  State  refused  to  obey  the  law. 
The  officers  appointed  to  execute  it  were  so  seriously 
intimidated  that  they  abandoned  their  posts.  An  address 
written  by  Hamilton,  explaining  the  law,  and  seeking 
to  reconcile  the  discontented,  was  circulated.  No  good 
effect  followed.  A  proclamation  issued  by  the  President 
was  the  next  step  taken  by  the  government.  He  ex- 
horted all  persons  to  desist  from  any  proceedings  tend- 
ing to  obstruct  the  execution  of  the  laws,  and  invoked 
the  aid  of  the  magistrates  to  bring  offenders  to  justice. 
But  the  proclamation  was  disregarded  as  generally  as  the 
address  issued  by  the  secretary  had  been.  ]Many  of  the 
magistrates,  instead  of  co-operating  with  the  officers  of 
the  Federal  Government  to  maintain  the  laws,  encour- 
aged resistance  to  them.  Meetings  were  held  at  Pitts- 
burgh and  elsewhere ,  and  on  these  occasions  resolutions 
were   adopted,  tending   to   increase    the  discontent,  and 


108      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1796. 

encourage  rcisistaiice  to  the  execution  of  tlie  law.  Some 
of  these  resolutions  went  so  far  as  to  declare  all  excise 
collectors  infamous:  and  destruction  to  their  life  and 
property  was  threatened.  Among  the  persons  who  encour- 
aged opposition  to  the  government  was  Gallatin,  subse- 
quently secretary  of  the  treasury.  The  spirit  of  rebellion 
rapidly  spread  and  intensified  until  the  summer  of  1799, 
when  an  effective  measure  was  put  forth  to  suppress  it. 
A  strong  military  force  of  fifteen  thousand  men  was 
raised,  and  placed  under  the  command  of  Hamilton,  who 
marched  through  the  insurrectionary  district,  and  speedily 
quelled  the  disaffection  with  only  very  slight  loss  of  life. 

Durinof  the  next  session  the  law  was  modified  in  several 
ways.  A  few  members  favored  its  repeal  because  it 
abridged  the  liberties  of  the  people;  but  the  need  of 
money  was  so  great,  and  the  expediency  of  taxing  spirits 
distilled  at  home,  to  some  extent,  was  so  generally  acknowl- 
edged, that  Congress  \\isely  persisted  in  continuing  a  tax 
on  this  article.  Mutterings  and  grumblings  were  indeed 
heard  after  amending  the  law;  but  the  government  en- 
forced it,  and  collected  a  large  revenue  therefrom.  The 
law  was  frequently  modified ;  and  witliin  five  years  from 
its  enactment,  the  duty  had  been  changed  to  ten  cents  per 
gallon  on  spirits  distilled  from  molasses,  and  seven  cents 
on  spirits  distilled  from  grain  and  fruit.  These  duties 
were  laid  on  the  lowest  proof,  and  rose  as  high  as  eighteen 
and  twenty-five  cents  per  gallon  on  the  highest  proof. 
Country  distillers  who  used  domestic  materials  only  had 
the  option  of  paying  a  similar  duty,  or  a  yearly  duty  of 
fifty-four  cents,  or  a  monthly  duty  of  ten  cents,  for  every 
gallon  of  the  capacity  of  their  stills. 


1796.1 


INTERNAL    REVENUE.  109 


The  duty  on  spirits  distilled  from  domestic  materials 
was  collected  from  a  very  large  number  of  manufacturers, 
scattered  over  a  vast  and  thinly-settled  country;  while 
the  duty  on  spirits  distilled  from  molasses  was  more 
easily  collected,  because  the  manufacture  of  it  was  con- 
fined to  a  few  individuals  who  resided  at  the  seaports; 
In  consequence  of  the  difficulty  and  expense  attending 
the  collection  of  the  former  tax,  Gallatin,  in  his  "  Sketch 
of  the  Finances,"  which  appeared  near  the  close  of  1796, 
suggested  the  expediency  of  laying  a  moderate  monthly 
or  yearly  duty  on  the  stills,  proportionate  to  their  capa- 
city ;  repealing  the  option,  at  that  time  given,  to  pay  in 
proportion  to  the  quantity  distilled. 

Gallatin  believed  that  several  beneficial  results  would 
follow,  if  the  law  were  thus  amended.     The  difficulty  of 
discovering  the  quantity  of  spirits  manufactured  caused 
evasions  of  the  duty  equally  injurious  to  the  revenue, 
to  the  fair  trader,  and  to  the  morals  of  the  people.     A 
premium,  indeed,  seemed  to  be   offered   by  the  present 
law  to  those  who  should  violate  their  oaths,  —  a  tempta- 
tion, perhaps,  too  strong  to  be  always  resisted  by  all  the 
indi\'iduals  to  whom  it  was  presented.     To  prevent  such 
evasions,  it  was  necessary  to  create  a  number  of  officers, 
proportionate  to  the  extent  of  territory  and  to  the  num- 
ber of  manufacturers,  and  to  invest  them  with  extensive 
powers,  and  to  subject  the  manufacturer  to  a  vexatious 
but  necessary  inquisition.     But  it  was  very  easy  to  know 
whether  a  man  distilled  or  not,  however  difficult  it  might 
be  to  find  out  the  quantity  of  spirits  which  he  distilled. 
The  number  of  officers  needed,  therefore,  would  be  com- 
paratively few.     Every  distiller  felt  interested  in  having 


110      riNAXCIAL  HISTORY  OF  THE  UNITED  STATES.       [1796. 

all  pay  the  duty  who  were  properly  subject  to  it.  By  the 
present  plan,  he  could  by  no  means  check  the  frauds 
committed  by  others :  by  the  plan  proposed,  he  would 
contribute  to  secure  the  public  against  them.  In  every 
point  of  view,  the  expense  of  collection  would  be  dimin- 
ished ;  evasions  of  the  duty  would  become  almost  impos- 
sible ;  and  the  distiller,  after  having  paid  for  his  license, 
would  be  liberated  from  the  visits  of  the  officers,  and 
from  the  duty,  however  inconvenient,  of  keeping  correct 
books  and  accounts. 

The  only  objection  to  the  mode  of  thus  paying  a  duty 
on  stills  was  the  possible  unequal  operation  of  the 
measure.  It  would  fall  more  heavily  on  small  stills, 
which  were  generally  owned  by  men  having  less  capital, 
and  located  in  less  advantageous  situations.  This  diffi- 
culty, Gallatin  suggested,  might  be  remedied  by  making 
the  duty  somewhat  less,  in  proportion  to  their  capacity, 
on  stills  under  a  certain  dimension.  It  was  further  re- 
marked, that,  however  improper  and  dangerous  it  might 
be  for  the  government  to  jDass  laws  with  the  view  of  giv- 
ing a  certain  direction  to  industry  and  capital,  it  could 
not  be  doubted  that  the  effects  of  a  provision  which 
tended  gradually,  and  without  any  injury  to  the  property 
then  invested  in  that  business,  to  diminish  the  immense 
number  of  small  distilleries,  would  prove  favorable  to  the 
general  wealth  and  to  the  morals  of  the  people.  At  the 
next  session  of  Congress  the  law  was  amended  in  accord- 
ance with  Gallatin's  suggestion,  and  a  duty  was  laid  on 
the  capacity  of  the  still.  This  mode  of  collecting  the 
duty  continued  until  the  repeal  of  all  internal  duties  in 
1802. 


1796.]  INTERNAL   REVENUE.  Ill 

As  additional  taxes  were  necessary,  the  retailers  cf 
wines  and  foreign  spirits  were  required  to  pay  five  dollars 
a  year  for  a  license  to  continue  their  business.  This 
regulation  applied  to  all  persons  except  tavern-keepers 
and  apothecaries  who  sold  wines  in  less  quantities  than 
thirty  gallons,  or  two-thirds  that  quantity  of  spirits. 

In  regard  to  this  tax,  Gallatin  acutely  remarks,  "The 
object  of  a  duty  upon  the  retailers  of  any  article  of  con- 
sumption which  is  already  taxed  is  to  increase  that  tax, 
but,  by  dividing  it,  to  diminish  the  temptation  of  smuc;- 
gling,  and  the  evasions  of  the  duty."  The  duties  upon 
the  importation  of  wines  and  spirits  at  the  time  he  wrote 
his  "Sketch"  amounted  annually  to  nearly  12,000,000. 
For  licenses  $60,000  were  obtained,  —  "  only  an  additional 
three  per  cent  on  the  duty ;  not  one  per  cent  on  the 
article."  To  Gallatin  it  did  not  seem  that  so  trifling  an 
addition,  less  than  one  per  cent  per  gallon  on  articles 
which  paid  at  least  twenty-five  per  cent  duty,  could 
possibly  encourage  smuggling.  He  declared  that  the 
duty  on  licenses  fell  very  unequally,  as  all  retailers  j)aid 
the  same,  whether  they  sold  much  or  little.  It  operated 
partly  as  a  tax  on  consumption,  and  partly  as  a  premium 
to  large  retailers.  He  thought,  therefore,  that  the  sum 
would  be  more  justly  and  conveniently  raised  on  the 
importation  of  the  articles.  But  an  annual  license-fee 
so  small  as  five  dollars  did  not  cause  much  hardship  or 
inequality.  To  the  retailers  selling  only  a  small  quan- 
tity the  duty  could  not  have  seemed  heavy ;  and,  of 
course,  the  more  prosperous  ones  could  not  have  felt  any 
sensible  diminution  of  their  income. 

Notwithstanding  the  heavy  duties   imposed,   the    con- 


112      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1796. 

sumption  of  domestic  and  imported  spirits  did  not  de- 
crease. Had  such  a  result  followed,  Gallatin  declared 
the  duty  would  have  probably  been  lowered ;  for  "  the 
object  of  the  government  in  laying  these  and  other  duties 
on  spirits  was  not  to  check  the  use,  but  to  raise  money." 

In  1794  a  tax  was  laid  on  carriages.  An  exemption 
was  made  of  those  employed  chiefly  in  husbandry  and 
in  transporting  goods.  The  tax  was  not  uniform,  but 
varied  from  one  to  ten  dollars  on  each  carriage.  Con- 
gress very  keenly  debated  whether  the  tax  was  not  a 
direct  one,  within  the  meaning  of  the  constitution,  which 
declared  that  no  capitation  or  other  direct  tax  should 
be  laid,  unless  in  proportion  to  the  census  or  enumer- 
ation for  taking  which  that  instrument  had  provided. 
Many  refused  to  pay  on  that  account ;  and  consequently 
the  revenue  derived  from  that  source,  during  the  first 
year  of  the  operation  of  the  law,  was  much  smaller  than 
had  been  expected.  Finally,  the  Supreme  Court  was 
asked  to  decide  the  question.  The  Act  was  adjudged 
constitutional. 

Gallatin,  when  treating  of  the  subject,  acutely  remarks, 
"  A  less  vague  expression  than  that  of  direct  might  have 
been  used  in  the  constitution :  as  it  now  stands,  it  is  diffi- 
cult to  affix  to  it  any  precise  and  determinate  meaning. 
The  word  in  itself  does  not  express  a  positive  or  absolute 
qualification,  but  only  the  relation  of  a  subject  to  another. 
The  constitution  mentions  only  one  of  the  subjects,  but 
does  not  say  in  relation  to  what  other  subject  taxes  are  to 
be  considered  as  direct.  The  direct  tax  is  that  which  falls 
directly ;  but  upon  what  ?  On  the  person  who  pays  it  ? 
On  the  article  taxed  ?     On  that  general  fund  intended  to 


1797.] 


INTERNAL   REVENUE.  113 


be  taxed  ?  .  .  .  The  most  generally  received  opinion,  how- 
ever, is,  that  by  direct  taxes  in  the  constitution  those  are 
meant  which  are  raised  on  the  capital  or  revenue  of  the 
people ;  by  indirect,  such  as  are  raised  on  their  expense." 
The  decision  of  the  court  settled  the  question,  and  those 
having  carriages  covered  by  the  law  were  obliged  to  pay. 
But  the  officers  who  attempted  to  execute  it  soon  en- 
countered a  great  difBculty  in  classifying  the  carriages  in  a 
satisfactory  manner :  consequently,  the  next  year  the  law 
was  amended,  and  the  various  kinds  of  carriages  werfe 
described  and  classified  more  perfectly.  As  they  were 
regarded  a  luxury,  Congress  acted  wisely  in  taxing  them 
in  preference  to  other  things  beside  spirits. 

A  duty  was  laid  on  sales  at  auction.  Auctioneers  were 
prohibited  from  selling  without  a  license,  and  they  were 
required  to  keep  an  account  of  their  sales.  This  duty  fell 
almost  wholly  on  imported  commodities,  and  Gallatin  was 
strongly  opposed  to  it.  While  the  duty  on  importations 
was  borne  equally  by  the  consumer,  the  auction  duty  was 
paid  by  the  importer  or  some  other  dealer.  Its  productive- 
ness was  determined  by  the  honesty  of  the  auctioneers, 
whose  temptation  to  render  false  accounts  was  very  great. 

As  the  revenues  still  proved  insufficient,  a  duty  was 
laid  on  vellum,  parchment,  and  paper  used  for  a  great 
variety  of  legal  writings  described  in  the  Act.  This  Act 
was  exceedingly  unpopular.  It  was  associated  with  a 
former  Act,  the  odiousness  of  which  was  vividly  remem- 
bered. Its  execution  was  at  first  delayed;  and  several 
modifications  occurred  during  the  short  period  of  its  ex- 
istence.    "  Curiously  enough,"  says  Gibbs,i  the  Act  "  fur- 

1  Vol.  i.  p.  555. 


114      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1795. 

nished  a  cause  of  jealousy  to  the  President,  who  for  some 
reason  supposed  it  to  exalt  the  powers  of  the  secretary 
of  the  treasury  at  his  expense." 

Taxes  were  levied  on  two  other  things,  —  sugar  refined 
within  the  United  States,  and  snuff.  On  the  former  arti- 
cle there  was  a  duty  of  two  cents  a  pound.  In  the  early 
days  of  its  production,  the  manufacturers,  aided  by  the 
high  duty  levied  on  the  raw  material,  supplied  the  entire 
consumption  of  the  country.  The  experiment  of  taxing 
snuff  was  not  successful.  At  first  a  tax  of  eight  cents 
per  pound  was  levied.  Under  this  law  only  a  very  small 
revenue  was  obtained.  The  tax  was  then  laid  on  the 
mills  employed  in  making  it,  and  a  very  much  larger  in- 
come was  received.  A  drawback  of  six  cents  per  pound 
was  allowed  on  the  quantity  exported.  The  money  with- 
drawn from  the  treasury  to  pay  this  allowance  was  greater 
than  the  whole  tax  received  from  the  same  source.  In 
truth,  snuff  was  manufactured  for  the  purpose  of  getting 
the  drawback,  which  operated  as  a  bount3^  The  difficulty 
of  rendering  the  duty  equal,  from  the  different  situation 
and  capacity  of  the  mills,  and  from  the  necessity  of  allow- 
ing a  drawback  on  the  exported  product,  although  it  was 
impossible  to  allow  one  proportionate  to  the  duty  laid  on 
the  machmery  employed  in  manufacturing  the  article,  and 
the  evasions  practised  by  hand-mills, — these  things  moved 
Congress  to  suspend  the  law  for  one  year,  but  it  was  never 
revived. 

Yet  from  all  these  sources  the  income  obtained  by  the 
government  was  inadequate.  It  was  not  so  large  as  the 
secretary  of  the  treasury  had  expected  it  would  be.  This 
was  owing  to  various  causes.     The  deficiency  in  duties  on 


1-95.]  INTERNAL    REVENTJE.  115 

distilled  spirits  and  stills  was  caused  by  the  lack  of  foreign 
materials  which  were  used  before  the  war,  and  by  the 
diversion,  to  some  extent,  of  the  capital  formerly  thus  em- 
ployed, into  other  industries.     Though  they  were  subjected 
to  an  internal  duty,  sufficient  time  had  not  elapsed  to 
perfect   the   machinery  for   collecting   it.      But  a   more 
serious  cause  of  the  unexpected  deficiency  was  the  lack 
of  energy  in  collecting  the  revenues.     The  establishment 
of  an  effective  and  productive  internal  revenue,  Wolcott 
declared,  was  truly  desirable  "  as  connected  with  a  speedy 
reduction  of  the  public  debt ; "  and  no  period  could  be 
more   fit   for   accomplishing   this   object  than  when   the 
internal   resources  of  the  country  were  flourishing  in  a 
manner  hitherto  unprecedented.^ 

Both  political  parties  saw  the  need  of  increasing  the 
revenue,  and  were  willing  to  take  steps  in  that  direction; 
but  there  was  a  wide  difference  between  them  about  the 
mode  of  raising  it.  The  Federal  party  proposed  to 
extend  the  present  system ;  but  the  other  party,  which 
controlled  the  House,  favored  direct  taxation.  From  an 
opinion,  says  Marshall,^  "that  direct  taxes  were  recom- 

1  Gibbs's  Adm.,  vol.  i.  p.  283. 

2  Life  of  Marshall,  p.  566.  "  Those  who  can  carry  their  recollection 
back  to  the  period  immediately  preceding  Mr.  Jefferson's  administration, 
or  who  are  familiar  with  the  history  of  parties  in  our  country,  know  that  it 
was  a  favorite  doctrine  with  the  Republican  party  that  direct  taxes  were 
preferable  to  a  tax  on  imports,  for  two  reasons.  One  was,  that  they  were 
more  economical,  inasmuch  as  the  importer,  being  obliged  to  advance  the 
tax  to  the  government,  charged  a  profit  on  such  advance,  as  well  as  on  the 
price  of  the  goods,  by  which  the  price  to  the  consumer  was  proportionally 
enhanced  ;  and  thus  more  was  taken  from  the  pockets  of  the  people  than 
was  paid  into  the  treasury.  The  other  reason  was  purely  a  political  one  : 
it  was,  that,  when  taxes  were  direct,  the  people  would  necessarily  know 


116      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1795. 

mended  by  intrinsic  advantages,  or  that  the  people  would 
become  more  attentive  to  the  charges  against  the  admin- 
istration, should  their  money  be  drawn  from  them  by 
nimble  means,  those  who  wished  power  to  change  hands 
had  generally  manifested  a  disposition  to  oblige  those  who 
exercised  it  to  resort  to  a  system  of  revenue  by  which  a 
great  degree  of  sensibility  will  always  be  excited."  The 
Committee  of  Ways  and  Means,  it  is  true,  proposed  a 
slight  increase  of  indirect  taxes  in  some  directions:  but 
they  expended  their  energies  chiefly  in  directing  the  secre- 
tary of  the  treasury  "to  prepare,  and  report  to  the  House, 
a  plan  for  raising  two  million  dollars  by  apportionment 
among  the  several  States,  agreeably  to  the  rule  prescribed 
by  the  Constitution ;  adapting  the  same  to  such  objects  of 
direct  taxation,  and  such  modes  of  collection,  as  might 
appear  hy  the  laws  and  practice  of  the  States  respectively 
to  be  most  eligible  in  each." 

The  secretary  of  the  treasury  favored  direct  taxation, 
not,  indeed,  as  a  temporary  or  sole  resource,  but  as  a  part 
of  a  permanent  system  which  should  include  the  taxation 
of  imports,  as  well  as  home  productions.  Such  a  system 
he  regarded  as  more  stable  than  one  by  which  the  reve- 
nues were  derived  wholly  from  imports,  or  by  indirect 
taxation.  Several  years  before,  a  plain  but  clear-brained 
friend  had  written  to  him :  "  External  taxation,  unpro- 
tected by  a  navy,  must  always  be  in  jeopardy.     Nor  is  it 

what  was  the  extent  of  their  burdens,  and,  when  they  were  increased, 
whereby  they  would  more  closely  look  into  the  expenditures  of  the  gov- 
ernment, and  thus  check  its  tendencies  to  waste  and  extravagance,  whicli, 
when  taxes  are  indirect,  they  may  indulge  with  impunity."  —  Hunt's  i/a,'/  , 
vol.  iv.  p.  507,  Essay  by  George  W.  Tucker.  For  Gallatin's  opinions,  see 
Section  I.  of  his  Sketch  of  the  Finances. 


i-ros.] 


INTERNAL   REVENUE.  117 


safe  to  leave  the  Union  without  any  arrangements  for 
direct  taxation,  as  it  will  take  years  to  devise  the  plan  and 
put  it  into  operation,  and  public  credit  will  sink  when 
most  wanted.     The  system  of  finance  certainly  ought  to 
be  a  complete  whole,  and  the  laws  of  revenue  to  embrace 
the  whole  circle  of  the  great  revenue  objects,  were  it  only 
to  have  such  revenue  laws  in  existence  for  future  use." 
Wolcott's   father,  at  the   same   time,  wrote  in  a  similar 
strain :  "  I  perceive  an  idea  has  been  given  out,  that  all 
national  pecuniary  provisions  could  be  made  which  are 
necessary,  even  including  the  State  debts,  without  a  direct 
taxation.     I  think,  with  all  my  ignorance  of  the  subject, 
that   it   would  be  very  strange  if   it  could  be   effected 
without  a  land-tax :  but,  if  it  can,  I  hope  it  will  never  be 
attempted;  for,  unless  there  shall  be  a   direct  taxation 
which  shall  affect  every  man  of  property,  the  people  in 
general  in  this  country  will  not  have  the  least  apprehen- 
sion of  the  existence  of  a  national  government,  and  con- 
sequently have  no  regard  for  it.     A  direct   taxation,  as 
odd  as  it  may  seem,  is  essentially  necessary  to  induce  a 
people  to  love  their   government."     Six  years  afterward 
Chauncey  Goodrich  wrote  to  the  senior  Wolcott,  "  It  is 
idle  to  imagine  that  the  public  debt  can  be  discharged  by 
imposts,  and  a  paltry  tax  on  stills,  snuff,  carriages,  etc. 
If  we  are  sincere  in  the  business,  —  or,  indeed,  in  having  a 
government,  —  we  must  be  willing  that  the  United  States 
shall,  by  a  certain  mode  of   collection,  come   upon   the 
body  of  property."     Very  many  at  that  day  held  similar 
opinions  concerning  the  expediency  of  imposing  a  direct 

tax. 

As  the  resolution  requiring  the  secretary  to  prepare  a 


118      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1796, 

plan  did  not  specify  the  amount  of  the  proposed  tax, 
Wolcott  assumed  a  sum  tliat  should  be  sufficient,  with  the 
revenue  accruing  from  other  sources,  to  pay  the  indebted- 
ness of  the  government  as  it  matured,  and  all  other  ex- 
penses connected  with  its  maintenance.  To  arrive  at  a 
correct  estimate  of  the  amount  required  for  this  purpose, 
a  concise  statement  of  the  finances  was  presented.  The 
amount  required  yearly,  until  1800,  was  $7,429,398.99. 
Of  this  sum,  'f2,700,000  were  allowed  for  the  probable 
expenditure  of  the  government,  which,  however,  was 
likely  to  swell  by  the  gradual  increase  of  the  nation,  and 
by  future  contingencies.  The  revenues  already  estab- 
lished amounted  to  $6,200,600 :  therefore  a  further  sum  of 
$1,228,794.50  was  required.  Allowing  fifteen  per  cent 
for  the  expense  of  collection  and  contingencies,  he  pro- 
posed a  direct  tax  of  $1,484,000.  Wolcott  then  described 
several  modes  of  imposing  the  tax.  The  first  mode  was, 
''  that  an  Act  of  Congress  should  be  passed,  declaring  the 
quotas  of  the  different  States,  assigning  a  time  for  payment 
into  the  treasury,  and  proscribing,  in  cases  of  delinquency, 
that  the  said  quota  should  be  assessed  and  collected  by 
the  authority  of  the  United  States,  upon  the  same  objects 
of  taxation,  and  pursuant  to  the  same  rules,  by  which  the 
last  taxes  were  assessed  and  collected  by  the  respective 
States;"  the  second,  "that  the  Act  of  Congress  should 
direct  that  the  proposed  tax  should  be  assessed  and  col- 
lected, under  authority  of  the  United  States,  upon  the 
same  objects  of  taxation,  and  pursuant  to  the  rules  of 
collection,  by  which  taxes  are  collected  by  the  States  re- 
spectively;" and  the  third,  "that  the  Act  of  Congress 
should  define  certain  objects  of  taxation,  and  principles  of 


1797.]  INTERNAL    REVENUE.  119 

assessment,  according  to  which  the  proposed  tax  should 
be  assessed  in  all  the  States,  to  be  collected  according  to 
uniform  regulations." 

Wolcott  recommended  the  third  plan,  singling  out  lands 
and  houses  for  taxation.  The  former  he  proposed  to  tax 
ad  valorem  ;  while  houses,  excluding  in  value  those  gener- 
ally occupied  by  farmers  and  laborers,  should  be  distrib- 
uted in  each  of  the  States  into  three  classes,  according  to 
their  value,  and  taxed  uniformly  in  each  class  at  specific 
rates.  Houses  in  general,  and  of  such  description  as 
should  be  determined  by  law,  he  proposed  to  tax  at  one 
uniform  rate.^ 

Early  in  January  ^  the  Committee  of  Ways  and  Means 
reported  in  favor  of  a  direct  tax  on  land  and  slaves. 
Congress  discussed  the  subject ;  but,  toward  the  close  of 
the  session,  Wolcott  wrote  to  his  father,  "  The  conduct  of 
Congress  is  a  political  phenomenon  over  which  I  would,  if 
possible,  draw  a  veil ;  but  it  cannot  be  concealed  that 
there  has  been  no  system,  no  concert,  no  pride,  no  indus- 
try. .  .  .  Nothing  will  probably  be  done  this  session  on 
the  subject  of  direct  taxes.  All  men  know  that  a  tax 
was  indispensable.  There  has,  however,  been  so  much 
said  formerly  against  direct  taxes,  that  but  few  have  the 
courage  to  speak  out.  I  have,  however,  done  my  duty.  I 
know  the  tax  to  be  necessary,  the  plan  I  have  proposed  a 
good  one,  and,  if  adopted,  would  not  only  establish  the 

1  Wolcott's  report  was  very  elaborate:  it  described  the  system  of  direct 
taxation  in  each  State,  the  principles  which  should  be  observed  in  creating 
a  national  system,  the  effect  of  the  system  on  the  objects  to  which  it  should 
be  applied,  beside  other  important  features.  Made  to  the  House,  Dec.  14, 
1796, 1  Finance,  p.  414. 

2  1797, 


120      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1798. 

government  and  public  credit  more  than  any  one  measure, 
but  would  lead  tlie  States  to  improve  their  own  systems. 
Moreover,  it  would  not  be  generally  unpopular.  The  peo- 
ple have  more  sense,  patriotism,  and  justice,  than  to  com- 
plain. They  wish  to  have  the  debt  extinguished,  and  they 
are  desirous  of  seeing  the  national  establishments  equal 
to  the  maintenance  of  the  rights  and  honor  of  the  coun- 
try. In  short,  I  know  that  the  measure  will  be  adopted, 
and  with  the  general  consent  of  the  people."  Wolcott 
was  right  in  his  gloomy  surmising,  for  Congress  adjourned 
without  adopting  the  much-needed  measure.  Hamilton 
reorarded  a  house-tax  and  an  extension  of  internal  taxes 
more  expedient  than  a  direct  tax.  In  a  letter  he  wrote  to 
Wolcott  was  enclosed  a  rough  sketch  of  a  building-tax. 
"  The  more  I  reflect,"  he  says,  "  the  more  I  become  con- 
vinced that  some  such  plan  ought  to  be  adopted,  and  the 
idea  of  a  tax  on  lands  ought  to  be  deferred." 

At  the  next  session  the  Committee  of  Ways  and  Means 
reiterated  the  necessity  of  raising  -$2,000,000  by  a  direct 
tax  on  lands,  houses,  and  slaves.  Though  exceeding  the 
amount  required  at  the  moment,  it  was  small  enough,  con- 
sidering the  future  needs  of  the  government. 

The  tax  was  apportioned  among  the  several  States  on 
the  enumeration  of  the  census  of  August,  1790,  when  the 
whole  representative  number,  including  three-fifths  of  the 
slaves,  was  3,650,250.  It  was  proposed  that  the  tax  be 
assessed  as  follows :  — 

1st,  On  dwelling-houses,  to  be  distributed  into  nine 
classes,  and  taxed  uniformly  in  each  class. 

2d,  On  slaves,  to  be  taxed  uniformly. 

3d,  On  lands,  to  be  taxed  at  such  rate,  ad  valorem,  in 


1801.1  INTERNAL   REVENUE.  121 

each  State,  as,  with  the  sums  assessed  on  houses  and 
slaves,  would  produce  the  entire  amount  of  the  sums  ap- 
portioned among  the  respective  States. 

According  to  the  estimates,  the  tax  on  houses,  as  pro- 
posed, would  produce  ^1,315,000 

Taxes  on  slaves 228,000 

Leaving  to  be  raised,  by  an  assessment,  ad  valorem,  on 

lands,  the  sum  of 457,000 

12,000,000 

Bills  were  subsequently  reported,  providing  for  the  val- 
uation of  lands  and  dwelling-houses,  the  enumeration  of 
slaves,  and  for  the  levy  and  collection  of  the  direct  tax. 
They  did  not  pass,  however,  until  July.  During  the  sum- 
mer the  preliminary  machinery  for  the  assessment  and 
collection  of  the  tax  was  prepared.  At  the  next  session 
several  amendments  to  the  law  were  suggested  by  Wol- 
cott,  which  were  adopted.  Among  other  alterations,  the 
President  was  authorized  to  increase,  whenever  necessary, 
the  salaries  of  the  officers,  the  smallness  of  which  had 
prevented  the  government  from  getting  suitable  persoub 
to  fill  them. 

Early  in  the  session  of  1801  an  attempt  was  made  to 
repeal  the  law,  notwithstanding  the  opposition  of  the 
Committee  of  Ways  and  Means.  One  of  the  leading  pur- 
poses at  the  time  of  enacting  it  was  to  organize  a  system 
for  laying  direct  taxes  in  case  the  government  at  any 
time  should  be  obliged  to  resort  to  them.  To  relinquish 
the  design  after  incurring  so  much  expense  would  have 
proved  the  fickleness  of  Congress.  Though  it  was  hoped 
that  no  more  direct  taxes  would  be  needed,  yet  it  was 


122      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1795. 

impossible  to  decide  the  question  definitely.  But  the 
attempt  to  repeal  the  law  failed,  and  the  valuations  were 
finally  completed.  Of  the  tax  of  -$2,000,000,  imposed  by 
the  law  of  1798,  the  sum  of  8734,223.97  was  collected 
(luring  the  year  1800,  and  the  remainder  was  received 
subsequently. 

The  expense  and  number  of  officers  employed  in  col- 
lecting the  internal  revenue  formed  a  topic  for  unfavor- 
able criticism  by  the  party  opposed  to  the  administration. 
Gallatin,  in  his  "Sketch  of  the  Finances,"  evinced  liis 
usual  acuteness  in  dealing  with  the  subject.  A  few  months 
before  publishing  his  work,  the  commissioner  of  internal 
revenue,  Tench  Coxe,  had  made  a  report  thereon,  in 
obedience  to  a  resolution  of  the  House.  Sixteen  .super- 
visors, twenty-two  inspectors,  two  hundred  and  thirty- 
six  collectors  (fourteen  of  whom  were  also  employed  in 
collecting  impost  and  tonnage  duties),  and  sixty -three 
auxiliary  officers,  composed  the  entire  force  engaged  in 
collecting  the  internal  revenues  of  the  government. 

The  expense  of  collecting  the  duty  on  spirits  distilled 
from  domestic  materials  was  much  larger  than  on  spirits 
distilled  from  molasses.  The  expense,  so  Gallatin  said, 
was  thirty-four  per  cent  in  the  former  case,  and  fourteen 
and  a  half  per  cent  in  the  latter.  He  therefore  maintained 
that  it  required  no  argument  to  show  that  a  tax,  the 
collection  of  which  cost  more  than  thirty  per  cent  of  the 
amount  received,  was  a  bad  one ,  and  no  doubt  could  re- 
main of  the  propriety  of  repealing  it,  and  substituting  any 
other  in  its  stead,  if  it  were  not  connected  with  the  tax 
upon  imported  spirits.  The  amount  collected  from  these 
sources  was  nearly  one  and  a  half  million  dollars ;  and 


1795.]  INTERNAL   REVENUE.  123 

there  could  be  no  doubt  that  it  woukl  be  in  some  degree 
affected  by  total  exoneration  of  the  tax  now  paid  on  the 
domestic  manufacture.  He  therefore  thought  it  was  more 
advisable,  under  the  present  circumstances,  to  modify  the 
most  exceptionable  part  of  the  law,  —  that  which  related 
to  spirits  distilled  from  domestic  materials.  The  modi- 
fication proposed  by  him  was  a  duty  on  the  stills,  which 
was  subsequently  laid. 

The  expense  of  collecting  duties  on  sugar,  and  other 
articles  included  within  the  scope  of  internal  taxation, 
was  not  so  great,  in  proportion,  as  on  spirits  distilled  from 
domestic  materials.  The  duties  on  licenses  to  retailers 
of  wines  and  spirits,  and  sales  at  auction,  were  only  two 
and  one-half  per  cent:  those  on  sugar  refined  and  on 
pleasure-carriages  were  twice  as  great.  The  tax  on  snuff 
was  collected  with  so  much  difficulty,  that,  after  a  short 
attempt,  its  collection  was  suspended. ^  The  expenses  on 
all  these  things,  so  Gallatin  reckoned,  were  about  eigh- 
teen per  cent;  but  the  reader  should  consider  that  the 
arrangements  for  collecting  it  in  the  beginning  were  im- 
perfect; and  during  the  next  five  years,  while  the  revenues 
were  nearly  doubled  in  productiveness,  the  expense  of 
collection  was  no  greater,  —  in  truth,  was  somewhat  les- 
sened. 

Concerning  the  number  of  officers  employed,  the  com- 
missioner remarked,  that,  in  comparison  "with  facts  in 
the  scene  most  adjacent  to  the  seat  of  government,  these 
were  less  numerous  than  the  corresponding  officers  of  the 
States.      The    collectors    alone,"   he    continues,    "  of  the 

1  Short  History  of  the  Nature  and  Consequences  of  Excise  Laws,  Phil., 
1795,  p.  5(3. 


124      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1802. 

revenues  of  the  State  of  Pennsylvania,  all  of  Avhich 
are  of  course  internal,  are  believed  to  be  very  many 
more  in  number  —  as  well,  in  fact,  as  in  proportion 
to  the  respective  aggregates  of  the  taxes — than  all  the 
officers  of  every  description  employed  in  that  district 
to  superintend  and  collect  the  six  internal  duties  of  the 
United  States." 

There  was,  indeed,  one  conclusive  argument  in  favor 
of  laying  and  collecting  these  revenues.  The  excise  was 
part  of  the  system  by  which  Hamilton  sought  to  re- 
enforce  the  import  duties,  and  to  prepare  the  way  for 
collecting  a  revenue  in  time  of  war,  when  the  usual 
sources  of  taxation  should  become  dry.  It  was  desirable 
to  develop  the  system  as  rapidly  as  possible,  with  the 
least  injury  to  the  interests  of  the  people,  to  test  their 
tax-paying  power.  The  taxes  had  been  laid  first  on  im- 
ports, followed  by  internal  taxation ;  and  lastly,  a  direct 
tax  was  imposed.  Some  people  squirmed  in  bearing  the 
burden  ;  but  what  would  they  have  thought  had  they 
lived  in  "  the  land  of  Gex  "  during  the  days  of  Voltaire, 
when  the  inhabitants  paid  a  land-tax,  poll-tax,  twentieth, 
seigneurie,  impost  duties,  tobacco-tax,  salt-tax,  special  salt- 
tax,  cotton-tax,  and  road-tax,  —  the  latter  in  labor  ? 

With  the  advent  of  Jefferson's  administration,  all  in- 
ternal duties  were  repealed.  Gallatin,  who  was  the  ablest 
financier  in  his  party,  did  not  recommend  their  repeal ; 
but  the  Committee  of  Ways  and  Means  did,  of  which  Ran- 
dolph was  chairman.^  Their  mode  of  treating  the  matter 
is  proof  of  the  absence  of  that  careful  precision  which 
marked   the    official   conduct   of   Gallatin,   Wolcott,  and 

1  Report  on  Internal  Duties,  March  8,  1802,  1  Finance,  p.  734. 


1808.]  INTERNAL   REVENUE.  125 

Hamilton.  Randolph  estimated  the  duties  accruing  from 
this  source  for  the  year  1800  "at  a  sum  not  exceeding 
8710,000,"  and  that  they  were  "  chargeable  with  the  ex- 
pense of  collection,  equal  to  $120,000."  The  truth  was, 
the  sum  collected  for  that  year  was  $772,322.59,  exclud- 
ing the  income  from  stamps;  and  the  expense  of  collection, 
$88,161.06. 

The  inference  which  Randolph  desired  to  have  drawn 
from  the  following  statement  in  his  report  is  very  appar- 
ent :  "  To  produce,  therefore,  into  the  treasury,  somewhat 
less  than  $600,000,  an  expense  must  be  incurred  more 
than  equal  to  a  fifth  of  that  sum."  The  fact  was, 
that  less  than  one-ninth  was  spent  in  collecting  the 
internal  revenue.  The  chief  reasons  urged  for  abolish- 
ing this  portion  of  the  f)ublic  revenue  are  thus  stated 
in  the  report :  — 

First,  "  In  the  vexation  and  oppression  of  many  of  them, 
some  of  which  are  peculiarly  obnoxious  to  our  citizens  " 
(the  tax  which  the  committee  doubtless  had  most  directly 
in  mind  was  that  for  distilling  spirits  from  domestic  mate- 
rials,—  a  source  whence  $372,561.60  was  derived  during 
1800,  and  collected  from  twenty-two  thousani  stills)  ;  sec- 
ondly, that  such  a  tax  was  "in  the  nature  of  excise, 
which  is  hostile  to  the  genius  of  a  free  people  ; "  and, 
thirdly,  because  so  long  as  the  duties  remained,  "their 
tendency  was  to  multiply  offices,  and  increase  the  pat- 
ronage of  the  executive.  This  effect  alone  would  for- 
bid the  retention  of  the  internal  taxes,  and  a  reduction, 
to  an  equal  amount,  of  the  impost  on  articles  of  the  first 
necessity :  since,  by  that  measure,  not  one  of  the  host  of 
officers  employed  in  their  collection  would  be  reduced." 


126      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1802. 

The  truth  appears  to  be,  that  the  repeal  of  these  taxes 
was  a  party  necessity.  The  Republicans  had  promised 
to  repeal  them ;  and  the  pressure  to  do  so  was  too  great 
to  be  resisted,  altliough  Gallatin  saw  how  dangerous  was 
the  step.  During  the  war  of  1812  his  party  re-imposed 
all  of  them,  including  even  the  direct  taxes. 


1790. J  THE  FIRST   UNITED-STATES   BANK.  127 


CHAPTER  VII. 

THE  FIRST  UNITED-STATES  BANK. 

A  NATIONAL  bank  was  included  in  Hamilton's  scheme 
for  restoring  the  finances  of  the  country.  Long  before, 
in  a  letter  to  Morris,^  he  had  not  only  given  weighty 
reasons  for  founding  a  bank,  but  had  accompanied  them 
with  a  plan  of  the  institution  itself.  The  necessity  for 
its  existence  cannot  be  measured  by  the  present  situation 
of  the  government.  At  that  time  there  were  only  three 
banks  in  the  country,  whose  capital  was  about  two  mil- 
lion dollars.  Their  bills  were  not  a  legal  tender,  and 
only  a  meagre  supply  of  gold  and  silver  existed  in  the 
country.  Indeed,  including  the  circulation  of  the  banks, 
money  was  so  scarce,  that  the  only  way  of  effecting  not  a 
few  exchanges  was  by  the  primitive  method  of  barter. 
More  money,  therefore,  was  greatly  needed ;  and  the  gov- 
ernment daily  suffered  for  want  of  it.  Confined  to  the 
use  of  gold  and  silver,  and  without  a  national  bank,  the 
government  incurred  considerable  expense  and  difficulty 
in  transferring  money  from  place  to  place.^  A  national 
bank  was  imperatively  required,  that  should  fulfil  both 
purposes,  as  well  as  many  others,  among  which  may  be 

1  Hamilton's  Works,  vol.  i.  p.  116. 

2  Gallatin's  Consideration  on  the  Currency  and  Banking  System,  Writ- 
ings, vol.  iii.  p.  328. 


128      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1791. 

mentioned  the  temporary  loaning  of  funds  to  the  govern- 
ment. 

A  bill  for  establishing  the  bank  was  introduced,  where- 
upon a  very  lengthy  debate  ensued.^  The  discussion 
raged  chiefly  around  the  j)oints  of  its  constitutionality 
and  expediency.  The  bill  finally  passed,  and  was  signed 
by  the  President,  after  getting  a  written  opinion  from 
each  of  his  cabinet  officers  concerning  its  constitution- 
ality. The  capital  of  the  bank  was  fixed  at  ten  million 
dollars,  for  one-fifth  of  which  the  government  could  sub- 
scribe. Its  existence  was  limited  to  twenty  years,  and  it 
was  forbidden  to  charge  more  than  six  per  cent  interest. 
The  subscriptions  of  individuals  were  payable,  one-fourth 
in  gold  and  silver,  and  three-fourths  in  the  six-per-cent 
stocks  of  the  government  then  bearing  interest,  or  in 
three-per-cents  at  one-half  of  their  nominal  value.  The 
subscription  of  the  government  was  to  be  paid  from  bor- 
rowed money,  which  was  immediately  to  be  reloaned,  and 
finally  reimbursed  in  ten  annual  instalments,  with  in- 
terest. Nt)  other  loans  exceeding  -^100,000  were  to  be 
made  to  the  United  States  without  authority  of  law.^ 
The  bank  was  authorized  to  establish  offices  of  discount 
and  deposit  in  the  several  States,  and  its  notes  were  to  be 
received  in  payment  of  dues  to  the  government.  It  was 
authorized  to  sell  the  government  stock  received  for  sub- 
scriptions, but  not  to  become  a  purchaser.^  Of  the  capi- 
tal, $6,700,000  were  reserved  for  the  chief  bank,  which 

1  A  very  full  account  of  the  debate  is  contained  in  Clarke  and  Hall's  Leg. 
and  Doc.  History  of  the  Bank  of  the  United  States. 

2  See  Act,  March  3,  1795,  3  Cong.,  second  session,  chap.  45,  sect.  19. 

3  Act,  Feb.  25,  1791,  1  Cong.,  third  session,  chap.  10. 


1791.]  THE   FIRST   UNITED-STATES   BANK.  129 

was  to  be  established  at  Philadelphia,  while  the  balance, 
$4,300,000,  was  to  be  divided  among  eight  branches, 
that  were  to  be  established  in  the  principal  cities  of  the 
Union.  The  entire  capital  was  immediately  subscribed, 
and  application  was  made  for  four  thousand  additional 
shares  within  two  hours  after  the  books  for  subscriptions 
were  opened.  Oliver  Wolcott  was  offered  the  presidency, 
but  declined  the  offer  ;  and  Thomas  Willing  of  Pliiladel- 
phia  was  elected.^ 

Not  only  would  the  operation  have  been  useless,  but  also 
disadvantageous,  to  the  government  at  that  time  to  pay 
for  its  stock  by  drawing  money  from  Europe,  and  then 
immediately  to  remit  it  as  a  loan  from  the  bank.  In 
doing  this,  there  would  have  been  a  loss  on  exchange 
in  consequence  of  overstocking  the  market  with  bills, 
and  a  loss  in  interest  by  the  delays  incident  to  the  opera- 
tion, beside  necessarily  suspending  the  useful  employment 
of  the  money.  To  the  bank  alone  could  any  benefit  have 
accrued  in  proportion  to  the  delay  in  applying  the  fund 
to  its  primitive  destination.  How,  then,  was  the  end  to 
be  accomplished,  of  paying  the  subscription-money  in 
order  to  vest  the  government  with  the  title  to  the  stock, 
of  getting  the  means  to  make  payment  from  the  foreign 
fund  (which,  of  course,  must  first  be  placed  in  the  treas- 
ury before  it  could  be  used),  and  replacing  the  same? 
for  none  of  these  steps  could  be  omitted  without  violat- 
ing the  law.  The  following  plan  was  devised  and  exe- 
cuted. The  treasurer  of  the  United  States  drew  bills  on 
the  American  commissioners  in  Amsterdam  for  the  sum 
required  to  pay  the  bank,  which  were  purchased  by  it. 

1  Gibbs's  Adm.,  vol.  i.  p.  68. 


130      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1793. 

By  issuing  warrants  in  favor  of  the  treasurer  on  the 
bank,  the  amount  was  placed  in  the  treasury.  Other 
warrants  were  subsequently  issued  on  the  treasury  in 
favor  of  the  bank  for  the  amount  of  the  subscription- 
money,  which  was  receipted  by  it  as  paid.  By  this  opera- 
tion the  government  paid  for  its  stock.  Immediately  the 
l)ank  loaned  $2,000,000  to  the  government  in  fulfilment 
of  a  stipulation  in  the  act  of  incorporation,  and  paid  it 
by  redelivering  the  bills  which  it  had  purchased  from 
the  government.  These  bills  were  then  cancelled ;  so 
that,  in  fact,  no  money  was  drawn  from  the  foreign  fund 
during  the  operation  of  paying  for  the  stock. ^ 

It  may  be  noted,  however,  that,  while  the  stock  had 
been  obtained  in  such  a  manner  as  to  satisfy  the  law,  the 
real  operation  consisted  in  getting  the  stock  by  a  promise 
that  the  two  millions  to  be  given  therefor  should  be  paid 
in  ten  annual  instalments  of  $200,000  each.  Let  us  trace 
briefly  how  the  government  executed  its  promise.  The 
first  instalment  was  due  the  1st  of  January,  1793.  In 
November  of  the  previous  year,  Hamilton  submitted  a 
proposition  to  the  House  respecting  the  matter.  But 
Congress  failed  to  act  in  time  ;  so  Hamilton  left  a  de- 
posit for  the  amount  with  the  bank,  which  had  the  effect 
of  suspending  interest  on  the  instalment.  Congress  took 
no  action  until  the  2d  of  March,  when  the  secretary  was 
authorized  to  pay  the  instalment  with  foreign  money. 
The  attorney-general,  however,  decided  that  he  could 
not  apply  the  foreign  fund  in  that  way  until  the  2oth  of 
June ;  so  that  not  until  the  20th  of  July  following  was 
the   first   instalment   paid,  —  a   delay  of  more   than   six 

1  Hamilton's  Works,  vol.  iv.  pp.  365,  451. 


1790.]  THE   FIRST   tJNlTED-STATES    BANK.  131 

months.  Hamilton's  inability  to  provide  funds  from  any 
other  source,  or  at  an  earlier  date,  reveals  the  weak- 
ness of  the  treasury  at  that  period.  The  second  instal- 
ment was  paid  in  the  same  manner.  Congress  was  duly 
notified  to  make  provision  for  paying  it,  but  acted  more 
slowly  than  before ;  for  not  until  the  4th  of  June,  1794, 
was  any  action  taken.  Hamilton  resorted  to  the  same 
expedient  for  stopping  interest,  and  securing  the  instal- 
ment, —  by  making  a  deposit  for  the  amount  due.  The 
next  year  Congress  acted  more  promptly,^  though  too 
late  for  making  payment  at  the  time  specified.  The  next 
two  payments  were  not  made  until  1797,  when  a  portion 
of  the  stock  was  sold,  and  •'r!400,000  were  applied  in  pay- 
ing the  fourth  and  fifth  instalments.  The  remaining 
payments  were  made  with  more  regularity,  and  with  less 
difficulty. 

The  new  government  had  not  been  going  long,  before 
the  necessity  arose  for  getting  a  temporary  loan  to  meet 
accruing  obligations.  Congress  authorized  the  President 
to  empower  the  secretary  of  the  treasury  to  make  loans 
for  paying  the  appropriations  of  the  year,  and  to  pledge 
the  duties  on  imports  and  tonnage  for  their  repayment.^ 
Such  an  anticipation  of  the  revenue  could  not  be  avoided, 
if  the  expenditures  of  the  government  were  to  be  paid 
when  they  became  due.  Though  an  old  custom  with 
other  governments,  the  only  justification  for  the  step  was 
a  great  and  immediate  necessity.  At  the  starting  of  the 
government,  there  were  no  funds ;  and,  though  steps  were 
soon  taken  to  raise  a  revenue,  of  course,  no  money  at  once 
flowed  into  the  treasury,  while  its  obligations  soon  began 

1  Jan.  8, 1795.      2  Act,  March  26,  1790, 1  Cong.,  second  session,  chap.  4. 


132      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1791. 

to  accrue :  hence  the  necessity  of  borrowing  for  a  short 
period,  until  the  revenue  increased  sufficiently  to  main- 
tain the  government.  Grave  as  was  the  situation  of  the 
government  at  the  outset,  several  unexpected  accidents 
required  the  expenditure  of  considerable  sums  before 
there  was  time  to  get  them  by  additional  taxation.  Thus 
these  temporary  loans,  which  were  derived  from  the  bank, 
continued  for  a  longer  period  than  was  expected  in  the 
beginning,  and  caused  no  little  difficulty  to  the  treasury 
before  they  were  discharged.  Gallatin  declared  that  this 
was  poor  financiering,  because  the  government  was  bur- 
dened with  more  interest.  Little  did  he  dream,  when 
pronouncing  this  criticism,  that  within  fifteen  years  he 
would  suggest  the  issuing  of  treasury  notes,  which  were 
essentially  loans  of  the  same  nature.^ 

These  loans  were  of  three  distinct  kinds.  They  were 
in  anticipation  of  the  taxes  for  current  expenditures. 
The  last  of  these  was  made  in  1795.^  The  sinking- 
fund  commissioners  were  authorized  to  borrow  money, 
not  exceeding  $1,000,000  annually,  in  anticipation  of  the 
revenues,  to  pay  interest.  Each  loan  of  this  kind  was 
to  be  reimbursed  within  a  year  from  the  time  of  making 
it.  Loans  were  also  founded  on  the  revenues,  but  the 
money  received  was  applied  for  a  specific  rather  than  a 
general  purpose.  The  first  loan  of  this  kind  was  to  cover 
the  expense  of  an  Indian  war.  Congress  appropriated 
$150,000  from  the  surplus  revenues  of  1791,  and  $523,500 

1  Sketch  of  the  Finances,  "Writings,  vol.  iii.  p.  105  et  seq. 

2  Act,  March  3,  sect.  6.  There  was  another  loan  for  two  million  dollars, 
in  anticipation  of  the  direct  tax.  Act,  July  16,  1798,  5  Cong.,  second  ses- 
sion, chap.  84. 


1795.1  THE   FIRST   UNITED-STATES    BANK.  133 

from  accruing  duties,  for  this  purpose.  The  President 
was  then  "  empowered  to  take  on  loan,  on  account  of  the 
United  States,"  the  latter  sum,  which  was  to  be  reim- 
bursed from  the  surplus  of  duties.  Accordingly,  Hamil- 
ton contracted  with  the  bank  for  a  loan  of  $400,000.^ 
Another  loan  for  11,000,000  was  authorized  March  20, 

1794.2  It  was  a  part  of  the  settling-price  with  Algeria. 
The  Algerine  corsairs  had  preyed  on  American  commerce, 
inflicting  serious  damage;  and  a  number  of  Americans  had 
been  taken  prisoners,  and  carried  away  to  the  Land  of  the 
Moon.  Two  ways  were  suggested  for  rescuing  them. 
One  way  was  to  build  and  equip  a  navy,  and  declare 
war  against  Algeria:  the  other  was  to  ransom  the  pris- 
oners. The  latter  was  the  cheapest :  the  former  was 
the  most  spirited.  The  desire,  or  perhaps  necessity,  for 
economy,  outweighed  the  desire  to  revenge  tlie  insult  sus- 
tained by  the  nation.  Only  $200,000  of  the  sum  needed 
to  pay  the  pirates  could  be  obtained,  which  was  borrowed 
of  the  Bank  of  New  York  at  five  per  cent  interest.  The 
4th  of  February,  1795,  the  President  submitted  the  sub- 
ject to  the  consideration  of  Congress.  The  House  re- 
ferred the  matter  to  the  secretary  of  the  treasury  to 
ascertain  at  what  price  the  desired  loan  could  be  pro- 
cured. The  result  of  his  negotiations  was,  that  the  Bank 
of  the  United  States  offered  to  lend  $800,000  in  six-per- 
cent government  stock,  if  certain  duties  were  pledged  for 
payment.  The  stock  was  borrowed,  and  the  house  of 
Barings  was  designated  to  negotiate  the  sale  of  it,  and 
to  remit  the  proceeds  to  Gen.  Humphreys,  who  was  con- 

1  Act,  May  2,  1792,  2  Cong.,  first  session,  chap.  27,  sect.  16. 

2  Act,  3  Cong.,  first  session,  chap.  7. 


134      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1795. 

ducting  the  negotiations  for  the  government.  Before  the 
arrival  of  the  stock  in  Enghmd,  the  market-price  had 
fallen,  and  it  was  sold  at  a  sacrifice.  The  secretary  of 
the  treasury  was  denounced  as  the  author  of  the  whole 
transaction,  including  the  treaty,  by  the  party  opposed 
to  him.  The  members  of  both  parties  had  voted  for  the 
'treaty;  the  terms  of  the  loan  had  been  communicated  to 
the  committee  appointed  by  Congress  to  consider  the  sub- 
ject, and  approved  by  tiiem  ;  and  the  bill,  which  was  the 
outcome  of  their  consideration  of  the  matter,  was  passed 
without  opposition.  The  measure  could  have  been  easily 
defeated  by  the  party  who  denounced  the  action  of  the 
secretary,  for  they  constituted  the  majority.  There  was 
no  ground  whatever  for  complaining  of  Wolcott's  con- 
duct.i 

The  third  loan  of  the  bank  was  for  81,000,000.  It 
was  authorized  at  the  same  time  as  the  Alffcrine  loan.'"* 
Differences  multiplied  and  intensified,  first  with  Great 
Britain,  and  afterward  with  France;  and  more  money 
was  needed  to  prepare  for  war  than  could  be  raised  imme- 
diately in  the  ordinary  manner.  The  next  loan  of  the 
bank  was  for  82,000,000,  which  was  authorized  in  Decem- 
ber, 1794.3  The  rate  of  interest  was  five  per  cent.  The 
money  was  spent  in  preparing  for  war.  In  February  *  of 
the  following  year,  another  loan  for  $800,000  was  author- 
ized, to  reimburse  the  bank  for  a  similar  sum  borrowed 

1  Ellsworth's  Letter  to  Wolcott,  March  8,  1796,  Gibbs's  Adm.,  vol  1. 
p.  306.    Ibid.,  pp.  141, 188,  320,  434. 

2  Act,  March  20,  ITW,  3  Cong.,  first  session,  chap.  8. 

3  Act,  Dec.  18,  17&4,  3  Cong  ,  second  session,  chap.  4. 

*  Act,  Feb.  21, 1795,  3  Cong.,  second  session,  chap.  25. 


1795.]  THE   FIRST    UNITED-STATES    BANK.  135 

the  year  before.  A  month  afterward  ^  the  government 
was  authorized  to  borrow  the  money  appropriated  for  in- 
creasing the  naval  armament,  and  other  purposes  con- 
nected with  the  army  and  navy.  Under  this  authority, 
•11,000,000  were  borrowed,  —  one-half  in  April,  and  the 
balance  in  October.  On  the  same  day  ^  a  law  was  enacted 
for  the  support  of  the  public  credit  and  the  redemption 
of  the  public  debt.  In  January  of  the  following  year, 
therefore,  the  commissioners  of  the  sinking-fund  borrowed 
'i{!500,000  of  the  United-States  bank  to  pay  the  interest 
on  the  public  debt.  The  same  year,'^  also,  under  a  law 
whicb  empowered  them  to  borrow  not  exceeding  the  sum 
just  mentioned,  to  pay  any  loan  due  to  the  Bank  of  the 
United  States  or  the  Hank  of  New  York,  '$320,000  were 
borrowed  of  the  latter  institution.  One  other  loan  of 
?<200,000  was  made  by  Wolcott,  of  the  United-States 
bank,  the  last  of  December,  1798. 

Thus,  from  the  beginning,  the  Bank  of  the  United 
States  was  very  accommodating  to  the  government.  But 
the  loans  were  not  promptly  paid :  the  balance  grew 
larger  every  year.  At  the  end  of  1792  the  amount  was 
'$2,556,595.50,  which  increased  to  -$6,200,000  three  years 
afterward.*  Both  Hamilton  and  Wolcott  had  urged  the 
increase  of  taxation  as  the  true  remedy  for  preventing 
an  accumulation  of  indebtedness,  but  Congress  was  very 
slow  in  applying  it.  The  bank  became  impatient.  The 
loan  of  so  large  a  portion  of  its  funds  to  the  government 

1  Act,  March  3,  1705,  3  Cong.,  second  session,  chap.  46. 

2  Ibid.,  chap.  45.      3  Act,  May  31,  171t6,  4  Cong.,  first  session,  chap.  44. 

*  See  Otis's  Report  on  the  Condition  of  the  Treasury  Department,  Jan. 
28,  1801,  1  Finance,  p.  G90. 


136      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1790. 

crippled  its  operations.  The  expedient  proposed  hy  Wol- 
cott  was  to  commute  the  debt  into  a  funded  domestic 
stock,  bearing  six  per  cent  interest,  and  irredeemable  for 
such  a  period  as  would  invitu  purchasers  at  par.  A 
bill  was  introduced  into  the  House,  authorizing  the  com- 
missioners of  the  sinking-fund  to  issue  six-per-cent 
stocks  to  the  amount  of  •'^0,000,000,  which  they  were 
restricted  from  selling  below  par,  the  proceeds  of  which 
were  to  Ije  paid  to  tlie  bank.  The  stock  was  to  i^e 
redeemable  in  1819.  In  consecjuence  of  delaying  tax- 
ation, the  credit  of  the  governraunt  had  been  weak- 
ened ;  and  the  stock  could  not  be  sold  at  par  wlicn  tlie 
bill  passed  tlie  House,  and  the  directors  of  tlic  bank 
saw  very  clearly  that  the  bill  would  furnisli  no  relief. 
They  addressed  a  letter  to  the  secretary  of  the  treasury. 
"Public  funds,"  said  tlie  directors,  "like  other  prop- 
erty, are  exposed  to  feel  tlie  impression  which  contingent 
circumstances  operate  upon  its  value :  a  stipulation,  there- 
fore, that  it  shall  not  be  sold  but  at  a  given  price,  in 
order  to  extinguish  the  debts  contracted  with  the  bank, 
is  an  illusory  provision,  and  places  the  demands  of  the 
institution  on  a  very  unsafe  and  unsatisfactory  footing. 
It  is  likewise  opposed  to  the  practice  of  all  nations 
habituated  to  the  support  of  public  credit,  under  the 
operation  of  a  funding-system.  They  therefore  cannot 
but  view  a  conditional  arrangement,  by  which  the  bank 
may  be  compelled  to  wait  an  indefinite  period  of  time 
lV)r  payment,  as  an  infraction  of  a  contract,  and  incom- 
patible with  the  justice  of  their  country.  In  bank  opera- 
tions, where  punctuality  is  so  essential,  and  therefore 
so  strictly  observed,  there  is  but  little  difference  betwixt 


1796.]  THE    FIRST   TJNITED-STATES   BANK.  137 

a  delay  and  a  refusal  of  payment."  ^  They  could  get  no 
relief  by  purchasing  the  stock,  even  at  the  rate  speci- 
fied, though  not  worth  so  much,  because  the  charter 
precluded  their  doing  such  a  thing. 

The  next  day  Wolcott  addressed  a  letter  to  the  Sen- 
ate, stating  that  the  bill  with  this  restriction  would  not 
furnish  relief.  As  there  was  no  possibility  of  obtaining 
the  money  abroad,  nor  of  Congress  providing  a  sufficient 
revenue,  he  suggested  the  necessity  of  giving  the  com- 
missioners power  to  obtain  loans  unclogged  by  any  condi- 
tions which  could  possibly  occasion  a  failure  of  public 
credit.  The  Act,  therefore,  was  modified.  Not  more  than 
one-half  the  stock  could  be  sold  under  j)ar ;  and,  as  a 
final  resource,  the  commissioners  were  authorized  to  sell 
the  bank-shares  for  the  same  [)urpose. 

Even  thus  amended,  the  Act  was  not  what  it  ought  to 
have  been.  The  fact  cannot  be  denied,  that  the  majority 
in  Congress,  who  were  now  opposed  to  the  administration, 
did  not  care  to  relieve  the  government  from  its  financial 
embarrassments.  They  granted  appropriations  without 
hesitation,  but  refused  to  increase  the  taxes,  which  was 
the  true  remedy.  Had  tliis  step  been  taken,  these  tem- 
porary obligations  would  not  have  multiplied  so  rapidly. 
But  they  declined  to  do  so ;  and,  when  no  way  was  left 
except  to  fund  them,  Congress  did  this  so  slowly  and  in- 
effectively, that  the  good  opinion  hitherto  entertained  of 
the  honesty  of  that  body  was  shaken.^  Chauncey  Good- 
rich, one  of  the  most  prominent  and  fair-minded  members 

1  Communication  to  Senate,  May  11, 1796,  1  Finance,  p.  412. 
3  Gibbs's  Adm.,  vol.  i.  p.  346.    Act,  May  31,  1796,  4  Cong.,  first  session, 
chap.  44. 


138      FINANCIAL  HISTOIIV  OF  THE  UNITED  STATES.       [nofl. 

of  tlie  House,  wrote  concerning  tlie  plan  of  funding  the 
bank-loans,  "  If  this  operation  had  been  adopted  early  in 
the  session,  the  stock  could  now  have  been  sold  at  or 
above  par.  The  delay  and  the  wound  to  public  credit, 
from  the  preposterous  conduct  of  the  House  during  the 
session,  has  created  some  embarrassments  to  a  successful 
administration  of  the  finances."  ^  Three  weeks  later  he 
wrote,  "  The  most  serious  embarrassment  is  in  the  treas- 
ury department,  owing  to  the  perverse  and  ruinous  delay 
of  the  House  of  Representatives  in  not  seriously  and  early 
adopting  the  system  devised  by  the  secretary  of  the  treas- 
ury :  that,  I  have  before  advised  you,  was  to  create  stock 
to  pay  the  anticipations  at  the  bank.  Two  months  ago 
stock  would  have  sold  at  par:  now  that  can't  be  done. 
'J'he  Senate  have  given  an  unexpected  and  unfortunate 
direction  to  the  business."  ^  What  that  turn  was,  we 
have  just  described. 

The  new  stock  failed  to  attract  purchasers.  After  sev- 
eral months  had  passed,  only  880,000  had  been  subscribed, 
and  there  were  no  more  subscriptions.  So  the  commis- 
sioners were  compelled  to  sell  a  portion  of  the  bank- 
stock  to  reimburse  the  bank.  Hamilton  denounced  the 
action  of  Congress,  and  wrote  to  Wolcott,  "  I  shall  con- 
sider it  as  one  of  the  most  infatuated  steps  that  ever  was 
adopted."  2  Of  the  five  thousand  shares  owned  by  the 
government,  twenty-one  hundred  and  sixty  were  sold  at 
twenty-five  per  cent  advance,  or  for  $500  per  share.  The 
sum  received,  -11,080,000,  and  also  $120,000  obtained 
from  the  sale  of  the  new  government  stock,  were  paid  to 

1  Letter  to  Oliver  Wolcott,  May  G,  1796,  Gibbs's  Ailm.,  vol.  i.  p.  336. 

2  Ibid.,  p.  339.  3  VTorks,  vuL.vi.  p.  143. 


1793.]  THE    FIRST    UNITED-STATES    BANK.  139 

the  bank.  Shortly  afterwards  six  hundred  and  twenty 
sliares  more  were  sold  for  $304,260.^  After  that  period 
the  government  made  more  strenuous  efforts  to  reduce 
its  indebtedness  to  the  bank,  but  several  years  elapsed 
before  it  was  finally  discharged. 

The  opposition  which  was  shown  to  the  establishment 
of  the  bank  2  continued  throughout  its  existence.  One 
of  the  earliest  charges  brought  against  Hamilton,  after 
accepting  office,  was  that  he  displayed  favoritism  toward 
the  bank  in  drawing  foreign  bills,  and  depositing  the 
proceeds  there  solely  for  its  benefit.  He  contended  that 
the  funds  were  drawn  to  purchase  a  portion  of  the  public 
debt,  —  an  apjjlication  of  the  money  which  was  "  pro- 
ductive of  positive  and  important  advantages."  Ham- 
ilton completely  refuted  the  charge  by  showing  that  the 
larger  portion  of  the  bills  had  been  drawn  by  the  banks 
of  North  America  and  New  York,  and  whatever  benefit 
had  accrued  from  the  operation  was  gained  by  them. 
When  the  national  bank  was  established,  it  was  under- 
stood that  the  public  deposits  would  flow  into  it ;  yet 
they  went  there  gradually,  and  not  by  any  sudden  altera- 
tion of  the  current.  Indeed,  Hamilton  sought  to  remove 
them  by  way  of  payments,  rather  than  by  direct  trans- 
fer. So  far  did  he  succeed  in  this  intention,  that  he 
declared  a  cautious  regard  had  been  paid  to  the  conven- 
ience of  the  former  institutions,  and  the  reverse  of  a 
policy  unduly  solicitous  for  the  accommodation  of  the 

1  For  account  of  sales  of  shares,  see  1  Finance,  pp.  467-500 ;  2  Ibid., 
p.  351. 

2  See  An  Inquiry  into  the  Principles  and  Tendency  of  Certain  Public 
Measures,  Philadelphia,  1794. 


140      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1803. 

Bank  of  the  United  States  had  prevailed.  Indeed,  so 
much  had  this  been  the  case,  that  it  might  be  proved,  if 
it  were  proper  to  enter  into  the  proof,  that  a  criticism 
had  been  brought  upon  the  conduct  of  the  department, 
as  consulting  less  the  accommodation  of  the  last-named 
institution  than  was  due  to  the  government  and  to  the 
services  expected  of  it.^ 

Doubtless,  many  of  the  criticisms  against  Hamilton's 
administration  of  the  finances  of  the  government  sprang 
from  ignorance,  though  not  all  of  them.  So  long  as  he 
remained  at  his  post,  his  enemies  never  wearied  in  assail- 
ing him  for  his  dealings  with  the  bank.  They  were  more 
merciful  toward  his  successor,  but  even  Wolcott  was  not 
left  wholly  to  himself.  When  their  party  came  into 
power,  their  jealousy  of  the  institution  broke  forth.  In 
the  autumn  of  1802  Jefferson  wrote  to  Gallatin  that  he 
should  make  a  judicious  distribution  of  his  favors  among 
all  the  banks,  since  the  stock  of  the  United-States  bank 
was  held  largely  by  foreigners ;  and  "were  the  Bank  of 
the  United  States  to  swallow  up  the  others,  and  monopo- 
lize the  whole  banking  business  of  the  United  States, 
which  the  demands  we  furnish  them  with  tend  shortly 
to  favor,  we  might,  on  a  misunderstanding  with  a  foreign 
power,  be  immensely  embarrassed  by  any  disaffection  in 
that  bank."  On  the  12th  of  July,  1803,  he  again  wrote, 
"  I  am  decidedly  in  favor  of  making  all  the  banks  Repub- 
lican by  sharing  deposits  among  them  in  proportion  to 
the  dispositions  they  show.  If  the  law  now  forbid  it, 
we  should  not  permit  another  session  of  Congress  to  pass 
without  amending  it.  It  is  material  to  the  safety  of 
1  Hamilton's  Works,  vol.  iii.  p.  413. 


1803.]  THE    FIRST    UNITED-STATES    BANK.  141 

republicanism   to   detach   the   mercantile   interests   from 
its  enemies,  and   incorporate    them  into  the  body  of  its 
friends.      A    merchant    is   naturally   a   Republican,    and 
could  be  otherwise  only  from  a  vitiated  state  of  things." 
Jefferson's  feeling  toward  the  bank  was  very  much  like 
the  feeling  of  the  Jacobites,  during  the  reign  of  Queen 
Anne,  toward  the  Bank  of  England,  who  looked  forward 
to    its  destruction  as  the  most  probable   means  of  their 
restoration   to   power.     Jefferson's   hostility  was   mainly 
rooted  in  the  fact  that  the  managers  and  stockholders  of 
the  bank  belonged  to  the  political  party  opposed  to  him, 
and   he   desired   to  weaken   the   institution   in    order  to 
destroy  any  influence  that  it  might  possibly  have  in  the 
sphere  of  politics.     Adams   says   that   Gallatin    "gently 
put   aside   these   demonstrations   of    Mr.    Jefferson,   and 
administered  liis  department  on  business  principles,  with 
as   little   regard   to   political   influence  as  possible.     He 
looked  on  the  bank  as  an  instrument  that  could  not  be 
safely  thrown  away  ;  without  it,  his  financial  operations 
would  be  much  more  slow,  more  costly,  more  hazardous, 
and   more   troublesome,   than   with   it:    indeed,   he   was 
quite  aware  that  its  fall  would  necessarily  be  followed  by 
much  financial  confusion;   and  he   had  no  mind   to   let 
such  experiments  in  finance  come  between  him  and  his 
great  administrative  objects.     He  was  therefore,  by  neces- 
sity, a  friend  and  protector  of  the  bank." 

Jefferson's  hostility  to  the  bank  was  manifested  on 
another  occasion.  When  the  Territory  of  Louisiana  was 
purchased,  Gallatin  was  desirous  of  establishing  a  branch 
bank  at  New  Orleans.  He  considered  the  step  of  the 
highest   importance;   but   his   chief  was  vehemently  op- 


142      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1804. 

posed  to  such  an  extension  of  the  bank.  He  wrote  to 
Gallatin,  "  This  institution  is  one  of  the  most  deadly 
hostility  existing  against  the  principles  and  form  of  our 
constitution.  .  .  .  What  an  obstruction  could  not  this 
Bank  of  the  United  States,  with  all  its  branch  banks,  be 
in  time  of  war?  It  might  dictate  to  us  the  peace  we 
should  accept,  or  withdraw  its  aid.  Ought  we,  then,  to 
give  further  growth  to  an  institution  so  powerful,  so 
hostile?"  These  words  fell  lightly  on  Gallatin,  as  will 
be  seen  from  his  reply,  written  on  the  same  day  as  Jef- 
ferson's letter :  "  I  am  extremely  anxious  to  see  a  bank 
at  New  Orleans.  Considering  the  distance  of  that  place, 
our  own  security,  and  even  that  of  the  collector,  will  be 
eminently  promoted,  and  the  transmission  of  monej^s 
arising  from  the  impost  and  sales  of  lands  in  the  Missis- 
sippi Territory  would  without  it  be  a  very  difficult  and 
sometimes  dangerous  operation.  Against  this  there  are 
none  but  political  objections ;  and  those  will  lose  much  of 
their  force  when  the  little  injur}^  they  can  do  us,  and  the 
dependence  in  which  they  are  on  government,  are  duly 
estimated.  They  may  vote  as  they  please,  and  take  their 
own  papers ;  but  they  are  formidable  only  as  indviduals, 
and  not  as  bankers.  Whenever  they  shall  appear  to  be 
really  dangerous,  they  are  completely  in  our  power,  and 
may  be  crushed."  Jefferson  yielded,  and  the  bank  was 
authorized.  Meanwhile,  Gov.  Claiborne  had  undertaken 
to  establish  a  bank  there  by  his  own  authority.  Gallatin 
was  very  angry  at  this  proceeding,  and  wrote  a  letter  to 
Jefferson  condemning  the  act.^ 

As  long  as  the  bank  existed,  the  funds  of  the  govern- 

1  Adams's  Life  of  Gallatin,  pp.  308,  321. 


1809.]  THE   FIRST    UNITED-STATES    BANK.  143 

ment  were  deposited  with  it,  to  the  credit  of  the  United- 
States  treasurer.  They  were  considered  in  the  treasury 
from  the  time  of  depositing  them,  and  were  subject  to  his 
control.^  In  1802  the  balance  of  tlie  bank-stock  owned  by 
the  government  was  sold  at  forty-five  per  cent  advance. 
Thenceforth  the  government  ceased  to  be  a  stockholder. 

During  Gallatin's  administration  of  the  national 
finances,  once  only  did  he  apply  to  the  bank  for  a 
loan.  The  benefits  derived  from  it  by  the  govern- 
ment were  neither  few  nor  unimportant.  These  were 
stated  by  Gallatin  himself  in  a  communication  relating 
to  the  renewal  of  the  charter.  The  first  benefit  was  with 
respect  to  the  safe-keeping  of  the  public  money.  This 
applied  not  only  to  money  in  the  treasury,  but  also  to 
the  funds  in  the  hands  of  the  principal  collectors,  of  the 
commissioners  of  loans,  and  of  several  other  officers,  and 
afforded  one  of  the  best  securities  against  delinquencies. 
It  was  also  a  verj^  valuable  agent  in  the  transmission  of 
public  money.  As  the  collections  always,  in  various  quar- 
ters of  the  Union,  either  exceeded  or  fell  short  of  the 
expenditures  in  the  same  places,  a  perpetual  transmission 
of  money,  of  purchases  of  remittances,  at  the  risk  and 
expense  of  the  United  States,  would  have  been  neces- 
sary in  order  to  meet  those  demands,  had  not  the  bank 
been  established  ,  but  now  all  this  work  was  done  by 
it,  at  its  own  risk  and  expense,  wherever  its  branches 
existed.  Another  benefit  related  to  the  collection  of 
the  revenue.  The  punctuality  of  payments  introduced 
by  the  banking-system,  and  the  facilities  which  it  afforded 
to  the  importers  indebted  for  revenue  bonds,  were  among 

1  Hamilton's  "Works,  vol.  iii.  p.  449. 


144      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1809. 

the  causes  which  had  enabled  the  government  to  collect 
with  so  great  facility,  and  with  so  few  losses,  the  large 
revenues  derived  from  imports.  Lastly,  was  the  aid  fur- 
nished to  the  government  in  the  way  of  loans.  During 
the  first  ten  years  of  Gallatin's  administration,  the  gov- 
ernment had  been  so  prosperous  as  to  meet  its  obligations 
without  asking  the  bank  for  assistance ;  but  previously 
it  "had  been  eminently  useful  in  making  the  advances, 
which,  under  different  circumstances,  were  necessary." 
And  a  similar  disposition  had  been  repeatedly  evinced, 
so  Gallatin  affirmed,  whenever  the  aspect  of  affairs  had 
rendered  it  pro]3er  to  ascertain  whether  new  loans  might, 
if  wanted,  be  obtained.^ 

In  regard  to  accommodating  the  public,  the  Republi- 
cans complained  that  at  first  the  bank  had  been  less 
mindful  of  their  interests  than  of  the  interests  of  per- 
sons belonging  to  the  Federal  party.  The  stockholders 
of  the  branch  in  New  York  and  of  the  Bank  of  New 
York  were  principally  Federalists ;  and  "  Politicus " 
says  that  "  the  benefit  of  those  institutions  was  chiefly 
confined  to  the  adherents  of  one  political  sect.  Accom- 
modations were  carefully  withheld  or  sparingly  bestowed 
upon  members  of  the  opposite  party.  Such  as  were 
active,  or  had  rendered  themselves  obnoxious,  in  political 
pursuits,  were  certain  to  be  excluded  from  favor ,  and  it 
became  at  length  impossible  for  men  engaged  in  trade 
to  advocate  Republican  sentiments  without  sustaining 
material  injury."  The  establishing  of  the  Manhattan 
Company  effected  a  peaceful  revolution ;  "  the  business 
of  banking  was  placed  on  a  more  equitable  foundation ; 

1  March  3, 1809,  2  Finance,  p.  351. 


1809.]  THE   FIEST    UNITED-STATES    BANK.  145 

and  the  merchants  belonging  to  both  parties,  entertaining 
a  reasonable  hope  of  obtaining  discounts,  exercised  their 
political  sentiments  with  independence."  ^ 

In  1808,  three  years  before  its  charter  expired,  the 
stockholders  petitioned  for  its  renewal.^  They  were  soli- 
citous; for  if  Congress  refused  to  grant  an  extension, 
which  was  feared,  it  was  necessary  to  prepare  for  closing 
the  affairs  of  the  institution.  In  their  petition,  they  set 
forth  the  advantages  reaped  by  the  government.  They 
affirmed  that  the  profit  on  the  sale  of  its  stock  amounted 
to  more  than  six  hundred  and  fifty  thousand  dollars. 
Referring  to  the  support  derived  from  the  government, 
the  petitioners  declared  that  it  consisted,  not  so  much 
in  the  deposit  of  public  money  and  public  patronage,  as 
in  the  confidence  of  the  government,  founded  on  a  con- 
stant knowledge  of  its  interior  management  and  condi- 
tion ;  which,  in  turn,  had  attracted  the  confidence  of 
Europe  as  well  as  America  toward  the  institution,  and 
conferred  upon  it  a  character  of  dignity  and  stability,  and 
enabled  its  directors  to  set  an  example  of  prudence,  can- 
dor, and  impartiality,  honorable  to  themselves,  and  bene- 
ficial to  the  community. 

The  bank  now  formed  a  piece  of  the  financial  machine- 
ry of  the  government  almost  as  important  as  was  the 
Bank  of  St.  George  to  the  Ligurian  republic.  This  is 
why  Gallatin  so  strongly  favored  a  renewal  of  the  charter, 
although  a  very  large  portion  of  his  party  unfortunately 
did  not.     The  numerous  banks  already  established  under 

1  An  Impartial  Inquiry  into  Certain  Parts  of  the  Conduct  of  Gov. 
Lewis,  p.  8. 

2  2  Finance,  p.  301. 


146      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1810. 

the  authority  of  the  several  States,  might,  he  said,  afford 
considerable  assistance  to  the  government  in  its  fiscal  op- 
erations. There  were  none,  however,  which  could  effect 
the  transmission  of  public  money  with  the  same  facility 
as  the  Bank  of  the  United  States.  The  superior  capital 
of  that  institution  offered,  also,  a  greater  security  against 
any  possible  loss,  and  greater  resources  for  loans.  Nor 
was  it  desirable  for  the  government  to  be  entirel}^  depend- 
ent on  institutions  over  which  it  exercised  no  control.  A 
national  bank,  deriving  its  charter  from  the  national  Legis- 
lature, would,  under  every  emergency,  feel  stronger  induce- 
ments, both  from  interest  and  from  a  sense  of  duty,  to 
afford  to  the  Union  every  assistance  in  its  power.  On 
other  occasions  he  pressed  his  arguments  in  favor  of  con- 
tinuing the  institution,  while  petitions  appeared  from 
many  quarters  asking  for  the  same  thing.  There  was, 
however,  powerful  opposition.  The  fact  that  foreigners 
now  owned  the  larger  portion  of  the  stock  led  many  to 
oppose  a  renewal  of  the  charter.^  Thus  the  question 
drifted  on  the  tide  of  uncertainty,  until  the  meeting  of 
Congress  in  December,  1810,  when  a  decision  could  no 
longer  be  dela3-ed.  The  bank  had  become  a  greater 
necessity  than  ever  to  the  country ;  and  Gallatin  exerted 
his  utmost  power  to  prevent  its  destruction.  "  It  was  no 
mere  matter  of  party  or  of  personal  feeling  ,  the  bank 
at  that  moment  was  essential  to  public  safety ;  to  lose  it 
might  be  a  question  of  national  life."  ^  Moreover,  it  was 
understood  that  the  measure  was  a  test  of  Gallatin's 
power,  whose  unpopularity  with  a  considerable  faction 
of  his  own  party  had  now  become  very  great.  To  over- 
.1  2  Finance,  pp.  451,  460,  479,  480.       2  Adams'8  Life  of  Gallatin,  p.  426. 


1811.]  THE    FH;ST    UNITED-STATES    BANK.  147 

throw  the  bank  might  lead  to  the  resignation  of  GaHatin 
himself,  — an  event  which  his  enemies  earnestly  desired. 

The  debate  in  both  branches  of  Congress  was  long, 
able,  and  bitter.  The  old  question  of  the  constitution- 
ality of  the  bank  was  discussed  at  great  length ;  and  its 
opponents  denied  that  the  institution  was  at  all  necessary 
to  aid  the  government  in  discharging  its  functions, — that 
there  was  a  redundancy  of  capital,  which  was  evident 
from  the  rapid  multiplying  of  the  State  banks.  In  reply 
to  the  assertion  that  the  quantity  of  specie  would  be  re- 
duced by  the  exportation  of  the  large  amount  of  its  capi- 
tal belonging  to  foreigners,  it  was  declared  that  "  nothing 
could  be  more  absurd."  The  danger  that  in  the  future 
the  bank  would  be  the  centre  of  a  vast  political  influence, 
wliich  would  be  exerted  to  the  injury  of  the  people,  was 
magnified  in  a  very  extraordinary  manner.  The  reasons 
for  renewing  the  charter  were  stated  by  no  one  with  more 
ability  and  clearness  than  by  Mr.  Fiske  of  New  York. 
One  of  the  ill  effects  of  destroying  the  charter  would  be 
the  retiring  of  a  large  portion  of  the  circulating  medium 
of  the  country.  This  was  estimated  at  fifty  millions, 
twenty-four  millions  of  which  would  be  called  if  the 
charter  were  not  renewed.  The  effect  this  would  have 
upon  the  various  interests  of  the  country,  said  Mr.  Fiske, 
could  neither  be  described  nor  conceived.  It  would  in- 
evitably give  a  general  and  heavy  shock  to  all  paper 
credit.  And  what  could  be  substituted  ?  Of  silver  and 
gold  there  was  not  enough.  From  the  best  estimates, 
there  were  not  ten  million  dollars  of  specie  in  all  the 
cities  and  trading-towns;  and  this,  he  averred,  would 
be  collected  by  the  bank.     The  prices  of  all  stocks  and 


148      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.        [1811, 

property  would  be  depressed  ;  and  such  a  change  in  the 
system  would  occasion  great  embarrassment,  disappoint- 
ment, and  distress.  The  United-States  bank  had  faith- 
fully collected  the  revenues ;  but,  if  destroyed,  how  were 
these  to  be  collected  ?  Through  the  medium  of  the  State 
banks?  No  prudent  man,  in  his  individual  concerns, 
would  think  of  doing  such  a  thing.  "You  discard  a 
faithful,  honest,  responsible  agent,  whose  integrity  and 
fidelity  you  have  known  for  twenty  years,  and  you  place 
your  estate  in  the  hands  and  at  the  disposal  of  twenty  or 
thirty  entire  strangers,  of  whose  character  and  responsi- 
bility you  know  nothing,  nor  have  the  means  of  acquiring 
any  knowledge,  and  over  whose  conduct  you  have  no  con- 
trol. Should  an  individual  act  thus  with  his  property,  he 
would  be  deemed  to  have  lost  all  regard  for  it,  if  not  con- 
sidered a  madman."  Another  difficulty  was  then  pointed 
out,  the  truth  and  severity  of  which  the  government  too 
soon  was  to  learn :  it  was  the  difficulty  of  finding  a 
convenient  medium  to  transmit  from  one  portion  of  the 
country  to  another.  Specie  could  not  be  procured ;  and 
what  State  bank-bills,  if  sent,  would  pass  current  in  every 
part  of  the  United  States,  like  the  bills  of  the  bank  ? 
"  Carolina  and  Kentucky  bills  are  unknown,  and  would 
not  pass  in  New  York  or  Boston  ;  and  New- York  bills 
would  not  pass  in  Kentucky  or  Carolina.  New-England 
bills  do  not  pass  in  New  York  but  at  a  considerable  dis- 
count. But  under  the  present  system,  if  government 
have  five  millions  deposited  in  Boston,  and  it  is  required  to 
be  paid  at  New  Orleans,  a  draft  is  given  by  the  branch  in 
Boston  upon  that  in  New  Orleans,  and  the  money  is  paid 
at  the  latter  place  as  soon  as  the  mail  can  travel  there." 


1811.]  THE   FIRST   UNITED-STATES   BANK.  149 

We  shall  close  this  review  of  the  debate  with  one 
more  extract,  the  prophetic  importance  of  which  will 
interest  the  reader,  notwithstanding  its  length. 

"It  has  been  urged,"  continued  Mr.  Fiske,  "that  we  have 
too  much  paper  iu  circulation.  Admit  it.  The  destruction 
of  this  bank  will  increase,  not  diminish,  the  quantity  of  circu- 
lating bank-paper ;  and  I  consider  the  embarrassment  which 
must  immediately  follow  the  closing  of  the  concerns  of  this 
institution  as  the  least  of  the  evils  the  community  will  expe- 
rience from  a  refusal  to  renew  the  charter.  Congress  may, 
indeed,  prevent  the  operation  of  this  bank  after  the  4th  of 
March ;  but  Congress  can  neither  prevent  a  spirit  of  trade, 
nor  subdue  the  passion  for  speculation :  for  while  we  are 
debating  the  expediency  of  destroying  this  bank,  in  order  to 
free  the  country  from  the  mischiefs  of  an  extended  bank 
credit,  we  find  new  banks  springing  into  existence  in  every 
direction.  We  have  no  less  than  five  bills  now  on  our  table 
for  incorporating  this  number  of  banks  in  this  ten-mile  square 
district.  We  are  told  that  these  applications  are  an  evidence 
of  capital  or  of  corruption ;  but  I  consider  them  rather  as 
evidence  of  the  destroying  spirit  of  speculation,  which  threatens 
to  stand  upon  the  ruins  of  the  United-States  bank  till  the 
country  shall  be  overwhelmed  with  new  emissions  of  paper 
from  these  new  manufactories.  The  banks  established  by 
the  State  Legislatures  will  scramble  for  the  privilege  of  filling 
the  chasm  to  be  made  by  the  destruction  of  the  Bank  of  the 
United  States.  Already  are  they  preparing  for  the  patriotic 
endeavor.  Our  State  Legislatures  are  to  be  importuned  to 
become  bank-jobbers  and  joint  undertakers  and  copartners 
in  the  enterprise.  The  profits  are  to  furnish  revenues  suffi- 
cient to  satisfy  both  avarice  and  ambition.  Notwithstanding 
the   provision  in  the  constitution,  that  no  State  shall  'emit 


150      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1811. 

bills  of  credit,'  we  find  almost  every  State  in  the  Union,  inter- 
ested in  banks,  authorizing  corporations  to  issue  bank-bills, 
which,  so  far  as  they  exceed  the  capital  upon  which  they  are 
issued,  are  in  the  nature  of  bills  of  credit.  Several  States  own 
stock  in  these  banks,  and,  as  such  stockholders,  are  responsi- 
ble for  the  payment  of  these  bills.  Pennsylvania,  Virginia,  and 
Vermont  are  large  stockholders  in  their  State  banks.  New 
York  and  North  Carolina  have  also  an  interest  in  some  of 
their  banks.  The  States  cannot  be  restrained  ;  nor  is  it  to  be 
wished  that  they  should  be  pi'ohibited  altogether  from  incor- 
porating banks.  But  what  difficulties  are  we  to  experience 
in  resorting  to  these  numerous  and  conflicting  institutions  for 
the  collection,  safe-keeping,  and  transmission  of  our  revenues? 
The  deposits  of  the  government  will  render  banking  profitable 
to  the  favorite  bank  that  receives  them.  The  aid  of  the  gov- 
ernment will  make  this  bank  superior  in  funds  and  credit  to 
any  of  the  others  which  do  not  share  this  solid  patronage. 
This  will  produce  jealousies  and  collisions  of  interests  between 
banks  in  the  same  State,  and  thus  form  cabals  against  the 
State  and  general  governments.  It  will  not  stop  here,  but 
will  extend  from  State  to  State.  If  the  States  and  State  banks 
are  to  regulate  trade  in  the  article  of  paper  money,  they  may 
prescribe  the  terms.  To  give  the  preference  to  their  own 
paper,  they  may  exclude  that  of  any  other  State  from  circu- 
lation among  them  in  the  same  way  that  the  paper  of  unin- 
corporated banks  is  excluded  by  some  States,  and  bills  of  a 
certain  amount  from  others." 

The  evils  depicted  so  soberly  by  Mr.  Fiske  were  en- 
countered in  due  time.  The  debate  in  the  House  was 
continued  for  many  days ;  but,  when  at  last  a  vote  was 
reached,  the  motion  to  postpone  indefinitely  the  bill  pro- 
viding for  a  renewal  was  carried  by  one  majority.     Many 


1811.]  THE   FIRST   UNITED-STATES   BANK,  151 

of  Gallatin's  best  friends  voted  against  renewal.  All  the 
Federalists  voted  on  his  side.  His  personal  enemies  turned 
the  scale.  The  debate  was  then  transferred  to  the  Sen- 
ate. William  H.  Crawford  appeared  there  as  Gallatin's 
champion.  He  supported  the  charter  with  such  courage, 
energy,  and  ability,  that  he  earned  Gallatin's  lasting 
gratitude,  and  made  himself  the  representative  of  the 
administration  in  the  Senate,  and  the  favorite  candidate 
of  the  Jeffersonian  triumvirate  for  succession  to  the  presi- 
dency. The  longest  speech  was  delivered  by  Senator 
Smith  of  Maryland,  covering  two  days,  in  which  he  tried 
to  prove  that  the  whole  theory  of  the  usefulness  of  a 
national  bank  was  a  delusion ;  that  State  banks  were 
better  depositories  of  the  public  money ;  that  the  secre- 
tary of  the  treasury  was  quite  mistaken  in  all  his  state- 
ments about  the  convenience  of  the  bank,  even  in  regard 
to  remittances  and  foreign  exchanges;  that  no  possible 
trouble  could  arise  from  abolishing  the  bank ;  and  that 
the  constitutional  objection  was  fatal.  Senator  Smith's 
brother  was  secretary  of  state,  and  a  bitter  enemy  of 
Gallatin ;  and  so  was  the  senator  himself.  No  one  strove 
harder  to  defeat  Gallatin's  plans,  and  to  drive  him  from 
his  post.  The  vote  in  the  Senate  was  a  tie,  —  seventeen 
to  seventeen.  George  Clinton,  the  Vice-President,  whose 
hostility  to  the  President  was  generally  known,  and  whose 
regard  for  Gallatin  was  none  too  strong,  decided  the 
question  in  the  negative.  Thus  the  bank  was  doomed  to 
expire  within  the  time  originally  limited  in  the  charter. 
Its  destroyers  by  this  act  exhibited  as  dense  ignorance 
of  the  great  worth  of  the  bank  to  the  government  and 
to  the  people  as  the  emperor  Severus  did  of  the  sources 


152      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1811. 

of   Memnon's  music  when  he  ordered  the  statue  to  be 
repaired.^ 

When  the  fate  of  the  institution  was  determined,  Gal- 
latin directed  the  collectors  of  all  the  chief  ports  to  stop 
depositing  custom-house  bonds  for  collection  in  the  bank, 
and  to  withdraw  those  falling  due  after  the  third  day  of 
March,  1811,  and  to  depo.sit  them  with  other  banks, 
which  were  designated.  The  deposits  were  gradually 
withdrawn ;  and  the  government  account  with  the  bank 
was  closed  the  2d  of  September,  1811,  except  a  small  bal- 
ance in  the  branch  at  New  Orleans.^  When  closing  the 
bank,  the  question  was  raised.  What  obligation  remains 
on  the  part  of  the  government  to  receive  its  notes  in  pay- 
ment of  duties  after  its  dissolution  ?  Congress  had  not  pro- 
vided for  such  an  event.  Gallatin  directed  the  collectors 
and  receivers  of  public  money  not  to  receive  any  which 
the  bank  refused  to  take  from  the  government,  or  which 
could  not  be  conveniently  redeemed.  At  first  no  serious 
difficulties  arose  from  refusing  to  prolong  the  life  of  the 
bank.  There  was  no  difficulty  in  transmitting  public 
funds,  and  the  revenue  generally  was  collected  as  prompt- 
ly as  it  had  previously  been.  In  March  the  Senate  were 
informed  that  the  apprehensions  of  distress  resulting  from 
a  non-renewal  of  the  charter  were  far  from  realization  in 
Philadelphia.     It  had  long  been  obvious  that  the  vacuum 

1  The  dangers  that  were  apprehended  from  closing  the  bank  are  con- 
cisely set  forth  by  Dr  Bollman,  in  the  postscript  to  the  second  edition  of 
his  Paragraphs  on  Banks;  and  by  Mr,  Carey,  in  his  Desultory  Reflections 
upon  the  Ruinous  Consequences  of  a  Non-Renewal  of  the  Charter  of  the 
Bank  of  the  United  States. 

2  Communication  on  Public  Deposits  in  Banks,  Jan.  8, 1812,  2  Finance, 
p.  516. 


1812.]  THE   FIRST   UNITED-STATES   BANK.  153 

ill  the  circulation  of  the  country,  produced  by  the  with- 
drawal of  the  notes  of  the  Bank  of  the  United  States, 
would  be  filled  with  the  issues  of  other  banks.  "This 
operation,"  said  the  committee  who  announced  the  pleas- 
ing intelligence,  "  is  now  actually  going  on :  the  paper 
of  the  Bank  of  the  United  States  is  rapidly  returning, 
and  that  of  other  banks  is  taki^ig  its  place.  Their  ability 
to  enlarge  their  accommodations  is  proportionately  en- 
hanced ;  and,  when  it  shall  be  further  increased  by  a 
removal  into  their  vaults  of  those  deposits  which  are 
in  possession  of  the  Bank  of  the  United  States,  the 
injurious  effects  of  a  dissolution  of  the  corporation  will 
be  found  to  consist  in  an  accelerated  disclosure  of  the 
actual  condition  of  those  who  have  been  supported  by 
the  credit  of  others,  but  whose  insolvent  or  tottering 
situation,  known  to  the  bank,  has  been  concealed  from 
the  public  at  large."  ^ 

How  meagre  their  vision  !  They  could  clearly,  though 
painfully,  see  the  figure  of  Gallatin  in  the  financial  hori- 
zon, but  hardly  any  thing  else.  He  covered  the  whole 
field.  But  let  us  look  ahead  to  the  opening  of  1812.  The 
circulating  capital  of  the  country  was  concentrated  in  the 
large  cities,  chiefly  north  of  the  Potomac,  and  more  than 
one-fourth  was  in  New  England.  The  Eastern  States 
were  flooded  with  a  heavy  importation  of  foreign  goods, 
and  specie  was  sent  abroad  to  pay  for  them.  A  much 
larger  amount  went  the  same  way  to  pay  foreign  share- 
holders of  the  bank,  who  owned  a  very  large  portion  of 
its  capital.     Previously  this  specie  had  been  slumbering 

1  Clay's  Report  on  the  Bank  of  the  United  States,  March  2,  1811, 
2  Finance,  p.  486. 


I'A      nXANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1812. 

ill  the  vaults  of  the  national  bank.  It  now  passed 
through  those  of  the  Eastern  banks  on  its  way  to 
Great  Britain.  In  the  Massachusetts  banks,  the  quantity 
rose  from  $1,700,000  in  June,  1811,  to  13,900,000  within 
a  year,  and  to  17,300,000  in  June,  1814.  Noiselessly,  a 
large  portion  of  it  disappeared  from  the  country.  Says 
Adams,  "  Even  the  most  prejudiced  and  meanest  intelli- 
gence could  now  understand  why  the  destruction  of  the 
United-States  bank  threatened  to  decide  the  fate  of  the 
war,  and  of  the  Union  itself.  The  mere  property  in 
the  bank,  important  as  this  was,  counted  for  compara- 
tively little  in  the  calculation;  although  $7,000,000  of 
foreign  capital  invested  in  its  stock  were  lost  to  the  coun- 
tr}^  by  its  dissolution,  and  had  been  remitted  to  Europe 
shortly  before  the  war."  ^  By  such  action.  Congress 
showed  the  same  lack  of  wisdom  as  did  the  Spanish 
statesmen  when  they  drove  the  Moors  into  the  sandy 
wastes  of  Africa,  taking  millions  of  ducats  with  them  at 
the  very  time  that  money  was  most  wanted,  when  taxation 
was  high,  and  a  revenue  very  dijBficult  to  obtain. 

This  loss  of  specie  was  very  serious,  but  still  worse 
things  happened.  State  banks  rapidly  multiplied  :  their 
managers,  ignoring  the  plainest  lessons  of  wisdom  in 
issuing  bank-notes,  were  soon  compelled  to  announce  the 
suspension  of  specie  payments,  —  an  event  which  pro- 
jected its  long  inevitable  train  of  injurious  consequences 
into  all  public  and  private  business.  As  Egypt  was  the 
gift  of  the  Nile,  so  did  the  people  now  fully  realize  that 
the  sound  money  which  had  circulated  throughout  the 
country  for  twenty  years  was  the  gift  of  the  United-States 

1  Adams's  Life  of  Gallatin,  p.  474. 


1812.]  THE    FIRST   UNITED-STATES    BANK.  155 

bank.  They  then  found  out  how  magical  had  been  the 
power  of  the  gold  belonging  to  the  bank  during  these 
years,  even  though  hidden  in  its  vaults  from  public  sight. 
Had  the  bank  been  suffered  to  live,  Gallatin  believed  that 
the  suspension  of  specie  payments  would  have  been  pre- 
vented, and  that  the  terrible  disorganization  gf  the  whole 
system  of  internal  exchanges,  which  nearly  brought  the 
government  to  a  dead  stop,  would  not  have  happened. 
Such  was  the  ultimate  and  disastrous  effect  of  the  refusal 
of  Congress  to  renew  the  charter  of  the  bank.  The 
"  factious  incompetence  "  which  Congress  displayed  "  cost 
the  nation  infinite  loss  and  trouble,"  and  did,  in  truth, 
imperil  its  very  existence.^  » 

1  Adams's  Life  of  Gallatin,  p.  430.  Gallatin  affirmed  in  1831,  "  It  is  our 
deliberate  opinion  that  the  suspension  might  have  been  prevented  at  the 
time  when  it  took  place,  had  the  former  Bank  of  the  United  States  been 
still  in  existence.  The  exaggerated  increase  of  State  banks,  occasioned 
by  the  dissolution  of  that  institution,  would  not  have  occurred.  That  bank 
would,  as  before,  have  restrained  within  proper  bounds,  and  checked,  their 
Issues  ;  and,  through  the  means  of  its  offices,  it  would  have  been  in  posses- 
sion of  the  eai-liest  symptoms  of  the  approaching  danger.  It  would  have 
put  the  treasury  department  on  its  guard;  both  acting  in  iconcert  would 
certainly  have  been  able  at  least  to  retard  the  event ;  and,  as  the  treaty  of 
peace  was  ratified  within  less  than  six  months  after  the  suspension  took 
place,  that  catastrophe  would  have  been  altogether  avoided."—  Considera- 
tions on  the  Currency  and  Banking  System  of  the  U.  S.,  Writings,  vol.  iii. 
p.  287. 


156      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1791. 


CHAPTER    VIII. 

COINAGE. 

The  Colonies,  notwithstanding  their  political  relation 
to  Great  Britain  previous  to  the  separation  in  1776,  had 
never  followed  very  closely  the  monetary  system  existing 
in  the  mother-country.  Long  before  the  Revolution,  the 
Spanish  dollar,  to  a  very  considerable  extent,  had  usurped 
the  function  of  the  pound  sterling  as  the  basis  of  reckon- 
ing. The  paper  money  issued  by  the  Continental  Con- 
gress was  not  made  payable  in  pounds,  shillings,  or  pence, 
but  in  Spanish  dollars,  which  had  found  their  way  here 
from  Havana. 

The  need  of  a  legal-money  standard,  and  of  a  mint  for 
coining  it,  had  been  realized  during  the  existence  of  the 
Confederatfon ;  and  Morris,  Jefferson,  and  others  had  con- 
sidered the  subject.  Laws  had  been  enacted  from  this 
stirring  of  the  question,  but  hardly  any  thing  was  done 
toward  executing  them.^  When  the  new  government  was 
established,  Hamilton  was  directed  to  report  a  plan  for 
the  creation  of  a  mint;  and  in  1791  he  presented  his 
report  to  Congress.^  "  The  great  variety  of  considera- 
tions —  nice,  intricate,  and  important  —  involved  in  the 
subject ;  the  general  state  of  debtor  and  creditor ;  all  the 

1  See  Financial  History,  previous  volume,  pp.  301-305. 

2  Works,  vol.  iii.  p.  149. 


1791.] 


COINAGE.  157 


relations  and  consequences  of  price ;  the  essential  interests 
of  trade  and  industry;  the  value  of  all  property;  the 
whole  income,  both  of  the  State  and  of  individuals,"  — 
these  remarks,  which  appear  in  the  beginning  of  his 
report,  show  how  fully  Hamilton  comprehended  the  im- 
portance of  the  inquiry. 

"The  dollar  originally  contemplated  in  the  money 
transactions  of  this  country,  by  successive  diminutions  of 
its  weight  and  fineness,  had  depreciated  five  per  cent; 
and  yet  the  new  dollar  had  a  ciirrency  in  place  of  the  old 
with  scarcely  any  attention  to  the  difference  between 
them.  Nor  would  it  require,"  he  continued,  "  any  argu- 
ment, to  prove  that  a  nation  ought  not  to  suffer  the  value 
of  the  property  of  its  citizens,  to  fluctuate  with  the  fluc- 
tuations of  a  foreign  mint,  and  to  change  with  the  changes 
in  the  regulations  of  a  foreign  sovereign." 

Hamilton  then  proceeds  to  inquire  what  ought  to  be 
the  nature  of  the  money-unit;  the  ratio  between  gold 
and  silver  (if  coins  of  both  metals  were  to  be  estab- 
lished) ;  the  proportion  and  composition  of  the  alloy  in 
each  kind;  ought  the  expense  of  coining  to  be  defrayed 
by  the  government,  or  out  of  the  material  itself;  the 
number,  denominations,  sizes,  and  devices  of  the  coins; 
and  ought  foreign  coins  to  be  allowed  to  pass  cur- 
rent or  not,  and,  if  aUowed,  at  what  rate,  and  for  what 

period. 

Concerning  several  of  these  points,  Hamilton's  views 
deserve  extended  consideration.  In  regard  to  the  first 
question,  the  money-unit,  he  inquired  what  it  actually 
was.  "The  pound,  though  of  various  value,  was  the 
actual  unit  of  the  money  of  account ; "  but  the  manner  of 


158      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1791. 

adjusting  foreign  exchanges  indicated  that  "  the  dollar 
was  best  entitled  to  that  character." 

Of  the  different  dollars,  the  dollar  in  actual  circulation, 
he  thought,  should  be  regarded  the  actual  money-unit, 
rather  than  the  ancient  dollar,  —  a  conclusion  strength- 
ened by  the  fact  that  "  it  was  more  conformable  to  the  true 
existing  proportion  between  the  two  metals  in  this  coun- 
try, and  to  that  which  obtains  in  the  commercial  world 
generally."  An  investigation  into  the  existing  ratio  be- 
tween gold  and  silver  yielded  no  precise  definition  of  the 
present  unit,  but  furnished  data  from  which  it  could  be 
ascertained.  In  determining  what  ought  to  be  the  future 
money-unit,  he  inquired  whether  it  ought  to  be  attached 
to  one  of  the  metals  in  preference  to  the  other,  or  other- 
wise ;  and,  if  to  either,  to  which  of  them.  The  resolves 
of  the  old  Congress  showed  that  the  unit  was  not  attached 
to  either  coin.  Contrary  to  the  ideas  which  had  prevailed, 
he  proposed  that  no  preference  should  be  given  to  either ; 
though,  if  there  were  to  be,  gold  should  be  the  favored 
metal  rather  than  silver,  because  it  possessed  greater 
stability.  The  principal  reason  why  such  a  preference 
should  not  be  given  was,  that,  in  attaching  the  unit  to 
either  of  the  metals,  the  office  of  the  other  as  money 
would  be  destroyed :  it  would  become  mere  merchandise, 
thereby  diminishing  the  quantity  of  circulating  medium, 
and  impairing  the  utility  of  one  of  the  metals. 

The  other  point  deserving  notice  was  what  ratio  should 
be  established  between  the  two  metals,  —  a  question  of 
great  moment,  both  from  the  consequence  that  an  over- 
valuation of  one  would  tend  to  banish  the  other,  and  be- 
cause it  would  produce  a  diminution  of  the  total  quantity 


1792.]  COINAGE.  159 

of  specie  in  the  country ;  though  the  latter  conclusion, 
from  local  and  particular  circumstances,  he  thought,  should 
be  received  with  caution.  In  establishing  this  ratio,  Ham- 
ilton wisely  remarked  that  the  commercial  relations  of 
this  country  with  Great  Britain,  and  the  future  payments 
of  interest  to  Holland,  should  be  considered.  Thus  view- 
ing the  question,  he  believed  that  the  commercial  propor- 
tion existing  in  those  countries  ought  to  be  preserved 
here.  "  There  can  hardly  be  a  better  rule  in  any  country 
for  the  legal  than  the  market  proportion,  if  this  can  be 
supposed  to  have  been  produced  by  the  free  and  steady 
course  of  commercial  principles.  The  presumption,  in 
such  case,  is  that  each  metal  finds  its  true  level,  according 
to  its  intrinsic  utility,  in  the  general  system  of  money 
operations."  In  Holland,  at  that  time  the  greatest  money 
market  of  Europe,  the  ratio  of  gold  to  silver,  in  December, 
1789,  was  1  to  14.88 ;  and  in  London  the  ratio  was  some- 
what nearer  1  to  15.  It  was  fortunate,  so  Hamilton  re- 
marked, that  the  innovations  of  the  Spanish  mint  had 
imperceptibly  introduced  a  proportion  so  nearly  analogous 
to  that  which  prevailed  among  the  principal  commercial 
nations,  as  it  greatly  facilitated  a  proper  regulation  of  the 
matter.  The  proportion  of  1  to  15  was  "recommended 
by  the  particular  situation  of  our  trade,"  especially  with 
Great  Britain,  to  which  nation  our  specie  was  principally 
exported. 

No  one,  at  that  time,  thought  of  driving  either  metal 
from  the  monetary  world,  for  the  supply  was  very  inade- 
quate. Hamilton  expressed  the  common  opinion,  when 
he  said,  "To  annul  the  use  of  either  of  the  metals  as 
money,  is  to  abridge  the  quantity  of  circulating  medium, 


160        FINANCIAL    HISTORY    OF    THE    UNITED    STATES.     [1793. 

and  is  liable  to  all  the  objections  which  arise  from  a  com- 
parison of  the  benefits  of  a  full  with  the  evils  of  a  scanty 
circulation." 

At  the  next  session  Jefferson  reported,  by  order  of  Con- 
gress, a  plan  for  establishing  uniformity  in  the  currency, 
weights,  and  measures.  He  proposed  to  add  "  five  grains 
of  silver  to  the  proper  weight  of  the  dollar,  without  a 
proportional  augmentation  of  its  legal  value."  So  serious 
a  change  in  the  unit  was  too  great  to  secure  its  adoption. 

In  1792 1  a  mint  was  established,  the  officers  of  which 
were  a  director,  an  assayer,  a  chief  coiner,  an  engraver, 
and  a  treasurer.  Gold,  silver,  and  copper  were  to  be 
coined.  The  piece  of  greatest  value  was  an  eagle,  "  to  be 
of  the  value  of  ten  dollars  or  units,"  and  to  contain  247 1 
grains  of  pure,  or  270  grains  of  standard  gold."  "Dol- 
lars or  units "  also  were  to  be  coined,  "  of  the  value  of  a 
Spanish  milled  dollar,"  then  current,  and  to  contain  371  j*g 
grains  of  pure,  or  416  grains  of  standard  silver.^  The 
half  and  quarter  dollar,  and  dimes  and  half-dimes,  were 
to  contain  the  same  proportions  of  silver.  Cents  were  to 
be  coined  of  the  value  of  the  one-hundredth  part  of  a 
dollar,  and  to  contain  eleven  pennyweights  of  copper. 
Half-cents  were  to  be  each  of  the  value  of  half  a  cent. 

The  ratio  between  gold  and  silver,  in   all  coins  com- 

1  Act,  April  2,  2  Cong.,  first  session,  chap.  16. 

2  Dr.  Linderman  says  that  Hamilton,  "  in  determining  the  quantity  of 
pure  silver  for  the  dollar,  did  not  take  the  lawful  standard  of  the  Spanish 
dollar  of  any  particular  issue,  nor  the  average  of  the  different  issues,  as 
his  guide,  but  the  actual  average  content  of  fine  silver  in  the  Spanish  dol- 
lars then  in  circulation  ;  which  coin  had  for  many  years  previously  been,  as 
it  was  then,  the  standard  by  which  other  moneys  were  generally  measured, 
and  in  which  contracts  and  money  obligations  in  this  country  were  dis- 
charged." —  Money  and  Legal  Tender,  p.  25. 


1792.]  COINAGE.  161 

posed  of  those  metals,  was  fixed  at  fifteen  to  one :  in  other 
words,  fifteen  pounds  weight  of  pure  silver  had  the  same 
legal  value  as  one  pound  weight  of  pure  gold. 

The  standard  established  for  gold  coins  of  the  United 
States  was  eleven  parts  fine  to  one  part  alloy.  The  alloy 
was  to  be  composed  of  silver  and  copper,  the  proportion 
of  the  former  metal  not  exceeding  one-half.  The  propor- 
tion was  to  be  regulated  by  the  director  of  the  mint,  with 
the  approbation  of  the  President.  The  standard  estab- 
lished for  silver  coins  was  1,485  parts  fine,  to  179  parts 
alloy,  composed  wholly  of  copper.  Individuals  could 
bring  gold  and  silver  bullion,  and  have  the  same  coined 
free  of  expense.  The  coins  were  made  a  legal  tender. 
Penalties  were  prescribed  for  debasing  them,  and  the 
money  of  account  was  to  be  expressed  in  dollars.  The 
majority  in  favor  of  establishing  the  mint  was  very  close, 
consisting  only  of  four  votes. 

Though  adopting  Hamilton's  plan,  the  control  of  the 
mint  was  given  to  the  State  department,  and  remained 
there  until  Hamilton's  retirement  from  the  treasury  office. 
One  of  his  last  official  acts  was  to  recommend  the  putting  of 
it  under  the  control  of  the  treasury  department,  where  it 
belonged.     His  recommendation  was  adopted. 

The  business  of  coining  had  not  been  conducted  long, 
before  difficulties  were  encountered.  One  of  these  was 
in  relation  to  getting  copper  fit  for  coinage  purposes. 
Another  and  a  still  more  serious  difficulty  related  to  the 
legal  standard  of  the  silver  coin.  Before  beginning  opera- 
tions, the  director  of  the  mint,  believing  that  the  standard 
thus  adopted  was  too  low,  and  would  debase  the  coin 
too  much,  causing  it  to  wear  black,  "presumed  that  an 


162      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1795. 

alteration  would  be  made,  which  was  recommended  by  its 
propriety  and  correctness." 

The  alteration  proposed  was,  that  nine  parts  in  ten 
should  be  fine  silver,  the  other  tenth  alloy,  or  ten  ounces 
sixteen  pennyweights  fine,  to  one  ounce  four  penny- 
weights alloy,  in  the  pound  Troy.  Supposing  that  such 
an  alteration  would  be  made,  the  coinage  was  begun  in 
October,  1794.  The  following  winter  the  matter  was 
submitted  to  a  committee  of  Congress,  who  reported  con- 
cerning the  propriety  of  making  the  alteration.  The 
report  was  favorably  considered  in  one  house,  but  was  not 
taken  up  in  the  other.  In  the  mean  time,  the  mint  con- 
tinued to  use  the  standard  at  first  adopted  as  though 
Congress  had  made  the  alteration.  Thus  for  a  time  the 
mint  dollar  contained  greater  value  than  the  legal  dollar, 
and  was  coined  contrary  to  law,  though  in  expectation  of 
what  the  law  would  finally  be.^  Instead  of  changing  the 
law,  the  fineness  of  the  dollar  was  changed  in  October, 
1795,  in  conformity  with  the  law  already  existing.  In 
the  mean  time,  silver  coin  had  been  coined  of  greater  fine- 
ness than  prescribed  by  law,  which  was  an  obvious  loss  to 
depositors.  They  received  all  the  silver  deposited,  but 
fewer  coins  than  they  would  have  received  had  the  law 
been  observed.  A  depositor,  discovering  his  loss,  asked 
the  government  to  pay  him  the  difference,  as  it  was  caused 
wholly  through  the  fault  of  its  officers.  A  committee  of 
Congress  reported  favorably  on  the  claim ,  but  Congress 
declined  to  act,  fearing  that  all  depositors  would  make 
similar  claims,  and  thus  subject  the  government  to  a 
new  burden  which  it  could  not  easily  bear.  Thus  the 
1  Pickering's  Report,  Dec.  14, 1795, 1  Finance,  p.  356. 


1796.]  COINAGE.  163 

early  history  of  the  operations  of  the  mint  was  peculiarly 
unfortunate.  Had  the  legal  standard  been  followed,  the 
difficulty  would  have  been  averted ;  but  the  departure 
therefrom  was  made  on  the  weightiest  grounds :  and  what 
Congress  should  have  done  was  to  adopt  the  standard 
proposed  by  the  director  of  the  mint.^ 

Other  difficulties  arose.  Notwithstanding  the  efforts 
of  those  directing  the  mint  to  manage  it  with  economy 
and  efficiency,  it  proved  to  be  a  very  expensive  institu- 
tion. Not  a  few  complained  of  the  heavy  outla}^  which 
was  neither  foreseen  nor  expected.  These  complaints  did 
not  contain  any  charge  of  personal  incapacity  against  the 
director  himself.  The  heavy  expenses  incurred  were  the  re- 
sult, chiefly,  of  the  principles  on  which  the  mint  was  estab- 
lished. Not  only  did  the  original  cost  of  the  works,  and 
the  salaries  of  the  officers,  fall  on  the  public,  but  also  the 
whole  expense  of  workmanship,  with  the  alloy,  mintage, 
and  contingent  losses.  The  want  of  an  experimental 
knowledge  of  the  business  prevented  the  formation  of  an 
accurate  estimate  of  the  expense  incurred  in  it ;  while  the 
undertaking  had  not  gone  far,  before  it  was  found  that  a 
melter  and  refiner  were  required.  Besides,  in  the  begin- 
ning, no  charge  could  be  made  for  the  process  of  melting 
and  refining  to  depositors :  the  whole  expense,  therefore, 
was  borne  by  the  government.  Hence,  in  assaying  one 
deposit  of  ninety -six  thousand  ounces  of  silver  bullion, 
which  proved  to  be  twenty-four  thousand  ounces  under 
standard,  the  refining  of  it  cost  the  United  States  more 
than  five  hundred  dollars;  so  that  the  depositor  really 
gained  that  sum  by.bringing  his  bullion  to  the  mint.  This 
1  Foster's  Report,  May  19, 1798, 1  Finance,  p.  588. 


164      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1796. 

operated  very  unequally  among  depositors.  The  citizen 
who  brought  bullion  in  such  a  debased  state  to  the  mint 
received  as  much  coin  for  the  standard  silver  therein  as  the 
one  whose  bullion  had  been  previously  refined  equal  to 
the  standard,  and  therefore  ready  for  coining,  —  an  opera- 
tion conducted  with  little  expense.  Moreover,  the  lack 
of  capital,  either  to  purchase  the  precious  metals  in  bul- 
lion, anticipate  payments  due  to  depositors,  or  coin  for  the 
public,  was  another  cause  of  very  considerable  expendi- 
ture. Depending  wholly  on  depositors  for  the  precious 
metals,  it  became  necessary,  for  their  encouragement  and 
satisfaction,  to  coin  every  deposit  as  soon  as  possible  after 
it  came  to  the  treasury  of  the  mint,  to  prevent  it  from 
remaining  unproductive  to  the  depositor.  It  was  neces- 
sary for  the  clippings  and  grains  to  be  melted  and  coined 
often  three  or  four  times  for  a  single  deposit.  Thus  the 
melting,  refining,  and  coining  of  a  deposit  of  two  hundred 
ounces  of  silver,  or  twenty  ounces  of  gold,  would  cost  the 
public  nearly  as  much  as  a  thousand  ounces  of  either, 
and  a  much  greater  proportional  wastage.  Had  the  bul- 
lion been  purchased  for  the  public  at  the  market-price,  and 
kept  in  the  vaults  until  the  collection  of  a  large  quantity 
for  a  single  coinage,  or  had  a  capital  of  perhaps  ten  thou- 
sand dollars  been  furnished  to  the  mint,  to  anticipate  pay- 
ments to  depositors,  without  resorting  to  an  immediate 
coinage  on  every  occasion,  a  very  great  saving  would 
have  been  effected,  not  only  with  respect  to  wastage,  but 
also  in  the  expenditure  of  the  materials  and  labor  used  in 
the  process ;  while  no  loss  would  have  occurred  to  the 
United  States,  save  the  loan  of  the  money  for  a  short 
time.     The  gains  to  the  government  would  have  been  ten- 


1796.] 


COINAGE.  165 


fold  greater  than  the  loss.  Besides,  such  a  practice  would 
have  had  a  tendency  to  fix  the  price  of  bullion,  and  indem- 
nify the  public  for  a  part  of  the  expense  of  coinage.i 

Such  was  the  policy  which  it  was  highly  expedient  for 
the  government  to  pursue.  In  1797  a  sum  was  appro- 
priated for  the  purchase  of  bullion ;  thus  effecting  the 
economies  described,  and  rendering  the  operations  of  the 
mint,  more  satisfactory  to  those  desirous  of  having  bullion 
coined  into  money .^ 

In  17953  there  was  other  legislation  respecting  coinage. 
The  treasurer  of  the  mint  was  directed  to   retain    two 
cents  per  ounce  from  every  deposit  of  silver  bullion  below 
the  standard  for  refining,  and  four  cents  per  ounce  from 
every  deposit  of  gold  bullion,  unless  it  were  so  far  below 
the  standard  as   to   require   the  operation  of  a  test;  in 
which  case  the  treasurer  was  to  retain  six  cents  an  ounce. 
Nor  was  he   obliged  to  receive  from  any  one  a  smaller 
deposit  of  silver  bullion  below  the  standard  than    two 
hundred   ounces,  nor  of  gold   less   than   one-tenth   that 
quantity.     The  officers  of  the  mint  were  allowed  to  give 
a   preference   to   gold   and   silver   bullion   deposited   for 
coinage,  conforming  to  the  standard  adopted  by  the  gov- 
ernment.*    The   next  year   the   law   was   changed,   and 

1  Pickering's  Report,  Dec.  20,  1796, 1  Finance,  p.  473. 

2  Haven's  Report,  Feb.  13,  1797,  1  Finance,  p.  494. 

3  March  3,  3  Cong.,  second  session,  chap.  47. 

4  Boudinot  says,  in  his  annual  report  of  the  mint  (Jan.  1803),  that  the 
certificates  for  deposits  were  sold  generally,  as  soon  as  given,  to  the  banks 
in  Philadelphia,  at  a  fourth  and  a  half  per  cent  discount  for  the  delay  of 
coinage.  "The  banks,"  he  adds,  "are  fond  of  keeping  the  coin  in  their 
vaults  as  part  of  their  capitals,  on  account  of  the  ease  with  which  they  are 
counted,  without  the  trouble  of  weighing.  The  Bank  of  the  United  States, 
indeed,  having  a  considerable  part  of  their  specie  in  this  com,  have  been 


16b*      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1796. 

thereafter  enough  was  retained  from  every  deposit  of 
gold  or  silver  bullion  below  the  standard  to  pay  for  refin- 
ing it.^ 

At  the  close  of  the  century  there  had  been  coined  and 
issued  from  the  mint  1696,530  in  gold,  $1,216,158.75  in 
silver,  and  in  copper  $50,111.42 ;  or  a  total  of  less  than 
!i!2,000,000.  The  expense  of  maintaining  the  establish- 
ment had  been  $213,336,  though  the  treasury  had  been 
reimbursed  by  the  payment  of  cents  and  half-cents  to  the 
amount  of  $48,041.42.  The  expense  seemed  so  dispro- 
portionate to  the  benefits  derived  from  the  mint,  that  a 
committee  of  Congress  recommended  the  closing  of  it, 
while  many  others  shared  in  this  opinion. 

In  their  report  the  committee  declared  that  to  furnish 
coin  sufficient  for  a  circulating  medium  throughout  the 
United  States  would  be  impracticable,  unless  the  capacity 
of  the  mint  were  greatly  increased,  and  the  custom  of 
melting  down  the  coin,  and  exporting  it  to  foreign  coun- 
tries, were  prevented.  This  could  be  done  in  no  way 
except  by  debasing  the  coin,  —  an  expedient  which  could 
not  be  recommended.  Even  that  might  prove  unavailing. 
Temporary  causes,  it  was  maintained,  had  hitherto  fur- 
nished a  great  proportion  of  the  bullion  which  had  been 
coined ;  and  the  only  way  to  furnish  a  regular  and  cer- 
tain supply  was  to  prohibit  the  circulation  of  foreign 
coins,  thus  converting  them  into  bullion,  which  was  the 

enabled,  for  some  time  past,  to  cancel  their  five-dollar  notes,  and  to  substi- 
tute the  payment  of  half-eagles,  by  which  our  coins  begin  to  be  more  gen- 
erally dispersed  among  the  people." 

1  Act,  May  27, 1796, 4  Cong.,  first  session,  chap.  33;  April  24, 1800, 6  Cong., 
first  session,  chap.  34,  sect.  2. 


1800.]  COINAGE.  167 

idea  of  those  who  were  in  favor  of  establishing  the  mint. 
Beside  the  inconvenience  attending  the  measure,  the  com- 
mittee believed  it  would  not  be  effectual  unless  the  trans- 
portation of  bullion  to  the  mint,  and  the  replacement  of 
its  value  in  coin,  were  done  at  the  risk  and  expense  of 
the  United  States ;  for  the  difference  in  value  between 
bullion  and  coin  was  so  small,  that  no  individual  would 
be  inclined  to  incur  the  risk  and  expense.  Even  cents 
and  half-cents,  it  was  believed,  the  mint  could  no  longer 
furnish  in  sufficient  quantity  on  the  plan  then  existing. 
Such  was  the  history,  condition,  and  prospects  of  the 
mint  at  the  close  of  a  seven-years'  experiment.^ 

The  expediency  of  closing  the  mint  continued  to  grow 
in  the  public  mind.  Public  opinion  became  divided  on 
the  question  of  importing  cents  coined  abroad  by  con- 
tract, and  of  having  them  made  here  in  a  similar  manner. 
Boudinot,  the  director  of  the  mint,  feared  that  "  an  im- 
portation of  cents  complete  would  hazard  the  running  of 
a  flood  of  cents,  lighter  than  allowed  by  law,  into  the 
United  States,  and  the  difficulty  of  preventing  the  evil 
would  be  very  great."  He  declared  it  would  be  a  greater 
security  to  government  to  have  the  coinage  of  copper 
executed  here  by  contract,  which  might  be  done  without 
expense  to  the  Union,  provided  the  government  would 
take  the  cents.^ 

Individuals  soon  appeared  who  were  ready  to  contract 
for  coining  them.  Robert  Scot  made  an  offer  to  Gallatin 
for  "the  exclusive  privilege  of  coining  cents  of  the  United 

1  Hillhouse's  Report,  March  14,  1800,  1  Finance,  p.  632. 

2  Gallatin's  Communication  relating  to  Mint,  April  2,  1802, 1  Finance, 
p.  744. 


168      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1S09. 

States,  as  well  from  abroad  as  from  within  the  realm," 
under  such  instructions  as  Congress  might  prescribe.  He 
proposed  to  coin  "  free  of  all  expense  to  the  government, 
excepting  that  of  receiving  them  when  coined,  and  pay- 
ing the  nominal  amount."  A  proposition  somewhat  simi- 
lar had  been  received  by  Jefferson  ten  years  before,  from 
a  person  residing  abroad,  to  coin  them  in  Europe,  and 
then  transport  them  to  this  country.^ 

The  law  establishing  the  mint  provided  that  it  should 
be  at  the  seat  of  government :  consequently,  when  that 
was  removed  to  Washington,  the  removal  of  the  mint 
became  necessary.  The  removal  was  delayed  by  law  un- 
til 1801.  For  many  years  the  question  was  unsettled ; 
but  finally,  in  1828,  Congress  resolved  that  the  mint 
should  remain  at  Philadelphia. 

As  the  institution  grew  older  its  efficiency  increased. 
The  workmen  acquired  greater  skill :  they  acquitted  them- 
selves with  strict  integrity ;  and  for  many  years  not  a  dol- 
lar was  lost,  except  in  a  single  instance.  The  culprit  was 
detected  by  the  officers  of  the  mint,  and  he  was  prose- 
cuted and  punished.  In  1805  about  eleven  thousand  dol- 
lars of  the  gold  coined  came  from  the  county  of  Cabarras, 
North  Carolina,  —  an  event  which  at  that  day  excited 
considerable  interest.  There  was  no  difficulty  in  getting 
a  sufficient  quantity  of  the  precious  metals  for  coinage. 
They  were  furnished  chiefly  by  the  banks,  especially  by 
the  Bank  of  the  United  States. 

The  expense  of  the  mint  from  its  establishment  to  the 
close  of  1809  was  1387,414,024.  There  had  been  a  profit, 
however,  on  the  copper  coinage,  of  $537,331.52,  thus  redu- 

1  Jefferson's  Report  on  Copper  Coinage,  April  15,  1790,  1  Finance,  p.  44. 


1797.]  COINAGE.  169 

cing  the  net  expense  of  running  the  mint  to  $350,082.77. 
The  total  value  of  the  coinage  to  that  period  was  $8,346,- 
146.21.1 

Before  the  mint  began  operations,  all  the  coins  in  circu- 
lation were  foreign.  Several  years  must  elapse  before  the 
mint  could  fill  the  channels  of  circulation  with  enough 
American  coin  to  discard,  without  inconvenience  and  loss, 
the  use  of  foreign  coin.  Hence  Congress  enacted,^  that 
after  the  first  day  of  July,  1793,  foreign  gold  and  silver 
coins  should  pass  current,  and  be  a  legal  tender  for  the 
payment  of  all  debts  at  certain  specified  rates.  They 
could,  however,  be  a  legal  tender  for  three  years  only 
from  the  time  the  mint  began  operations,  except  Spanish 
milled  dollars  and  parts  thereof.  As  these  were  of  the 
same  value  as  the  dollar  forming  the  monetary  unit,  there 
seemed  to  be  no  objection  to  continuing  the  use  of  them 
for  the  legal  discharge  of  debts.  When  the  three-years' 
limitation  began  to  run,  the  event  was  announced  by  a 
proclamation  of  the  President ;  and  all  foreign  coins 
received  b}"  the  government  were  coined  anew. 

On  the  twenty-second  day  of  July,  1797,  the  President 
issued  another  proclamation,  announcing,  that,  on  the  fif- 
teenth day  of  October  following,  foreign  silver  coins,  with 
the  single  exception  previously  noted,  would  cease  to  be  a 
legal  tender.  The  president  and  directors  of  the  Bank 
of  the  United  States  having  indicated  their  consent  to 
receive  French  crowns  and  other  foreign  silver  coins  as 
a  legal  tender  at  the  current  rates,  the  treasury  depart- 
ment permitted  foreign  coins  to  be  received  in  payment 

1  Gallatin's  Report  on  Mint,  Jan.  11,  1811,  2  Finance,  p.  464. 

2  Act,  Feb.  9,  1793,  2  Cong.,  second  session,  chap.  5. 


170      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1802. 

of  the  public  revenues  in  the  same  way  that  they  had 
previously  been.  To  obviate  inconveniences  which  might 
attend  the  negotiation  of  treasury  drafts,  the  supervisors 
and  collectors  were  requested  to  specify,  in  their  weekly 
returns  to  the  treasury  department,  the  amount  of  foreign 
silver  coins  in  their  possession  that  were  not  a  legal  tender 
for  the  discharge  of  debts.  They  were  also  requested  to 
inform  the  department  whether  these  coins  were  current 
by  common  consent,  in  order  to  have  such  measures 
adopted  for  the  collection  of  the  revenue  as  might  be 
necessary.! 

When  the  three-years'  limitation  had  expired,  not  much 
silver  coin  of  the  United  States  was  found  in  circulation 
far  from  the  mint,  and  still  less  in  the  interior  parts  of 
the  country.  Embarrassments  occurred,  and  losses  were 
sustained ;  for  a  very  considerable  quantity  of  foreign  sil- 
ver coins,  besides  Spanish  milled  dollars,  were  then  in 
circulation.  The  time  for  the  circulation  of  foreign  gold 
coins  did  not  expire  until  the  end  of  July  the  following 
year.2 

The  limitation  was  extended  from  the  1st  of  January, 
1798,  to  the  3d  of  May,  1802.3  But  legislation  on  this 
subject  was  singularly  defective.  The  legal  effect  of  this 
last  Act  was,  that  for  three  years  after  1802  no  foreign 
coins  whatever  were  a  legal  tender,  and  from  the  3d  of 
May,  1805,  Spanish  milled  dollars  and  parts  thereof  only 
could  be  thus  employed.^ 

The  exportation  of  Spanish  milled  dollars  was  so  large, 

1  Venable's  Report  on  Foreign  Coins,  Dec.  11,  1797,  1  Finance,  p.  503. 

2  Ibid.  8  Act,  Feb.  1,  1798,  5  Cong.,  second  session,  chap.  11. 
*  Anderson's  Report,  March  26,  1800,  '2  Finance,  p.  197. 


1810.]  COINAGE.  171 

and  so  many  of  the  foreign  coins  remaining,  as  well  as 
those  issued  by  the  United  States,^  were  kept  by  the  banks, 
that  Congress  determined  once  more  to  sanction  the  use 
of  foreign  coins.  Another  statute  was  passed,  fixing  the 
rates  at  which  foreign  gold  and  silver  coins  should  "  pass 
current  as  money  within  the  United  States."^  In  order 
to  know  the  real  standard  value  of  foreign  coins,  they 
were  to  be  assayed  yearly ;  and,  from  the  information 
thus  obtained.  Congress  could  intelligently  act  in  altering 
the  rates,  whenever  necessary.  This  law  was  to  continue 
in  force  for  the  customary  period  of  three  years,  or  until 
April  10,  1809. 

The  year  after  the  law  expired  an  attempt  was  made 
to  extend  the  limitation.  Josiah  Quincy  remarked,  in  a 
report  to  Congress,  that  the  denial  to  foreign  coins  of 
circulation,  and  of  employment  as  a  legal  tender,  had  the 
combined  effect  of  circumscribing  the  just  sphere  of  mer- 
cantile action,  and  of  encouraging  the  exportation  of  that 
species  to  which  these  privileges  were  denied.  In  the 
present  circumstances  of  the  United  States,  it  seemed 
peculiarly  unadvisable  to  permit  any  statute  of  prohibi- 
tions to  continue  which  had  a  tendency  to  produce  such 
an  effect.     The  statute  currency  of  the   United   States, 

1  Bolidinot's  Mint  Report,  January,  1805,  Patterson  remarked  in  the 
mint  report  at  the  close  of  1807,  "All  foreign  gold  coins  have  now 
nearly  ceased  to  circulate  as  a  currency  in  the  United  States.  Deposits 
of  these  are  still,  indeed,  frequently  made  in  our  banks,  but  are  thence 
either  sent  to  the  mint  for  coinage,  or  re-issued  for  the  purpose  of  ex. 
portation"  (see  his  Letter  to  Gallatin,  June  29,  1809,  to  the  same  effect, 
2  Finance,  p.  385).  One  reason  why  the  Spanish  coins  continued  to  circu- 
late was  their  light  weight  (see  Patterson's  Letter  to  Gallatin,  Dec.  19, 
1810,  2  Finance,  p.  455). 

2  Act,  April  10, 1806,  9  Cong.,  first  session,  chap.  22. 


172      FINANCIAL  HISTORY  OF  THE  UNITED  STAGES.       t'lSlO. 

which  then  consisted  only  of  the  coinage  of  the  mint, 
and  of  Spanish  milled  dollars  and  parts  of  the  same, 
was  probably  insufficient  for  the  ordinary  necessities  of 
domestic  exchange,  and  was  certainly  wholly  inadequate 
to  support  any  peculiar  embarrassment  of  the  circulating 
medium,  which,  in  the  event  of  the  dissolution  of  the 
Bank  of  the  United  States,  could  not  but  be  anticipated. 

In  employing  foreign  coins  once  more,  an  interesting 
question  was  raised  in  regard  to  the  use  of  Spanish  gold 
coins.  When  used  previously,  they  were  estimated  at 
four  per  cent  above  their  intrinsic  value :  in  other  words, 
"the  quantity  of  pure  gold  contained  in  twenty-seven 
grains  and  two-fifths  of  a  grain  of  Spanish  standard  coin, 
instead  of  being  equal  in  value  to  one  hundred  cents, 
the  statute  rate  was  only  equal  in  value  to  about  ninety- 
six  cents."  Should  the  old  statute  rate  be  established, 
or  a  new  one,  based  upon  its  intrinsic  value  ?  And,  fur- 
ther, if  a  new  rate  should  be  established  conformable  to 
its  intrinsic  value,  should  the  loss  of  four  per  cent  falling 
on  the  present  holders  without  any  fault  of  theirs,  but 
solely  by  reason  of  the  erroneous  estimate  made  by  the 
government,  be  assumed  by  it,  or  be  borne  by  them  ? 

Quincy  favored  the  establishing  of  a  new  rate  of  valua- 
tion ;  and  so  did  Gallatin,  who  declared,  that,  if  the  former 
Act  were  revived  without  any  alteration,  every  person 
receiving  those  coins  in  payment  would,  in  fact,  be  com- 
pelled to  receive  only  ninety-six  instead  of  one  hundred 
cents  on  every  dollar  paid  to  him.  Tlie  unavoidable  effect 
of  putting  in  circulation  any  one  species  of  coin,  at  a  rate 
liigher  than  its  known  intrinsic  value,  was  to  invite  its 
importation  and  increased  circulation,  and  to  drive  out 


^10.]  COINAGE.  173 

he  other  species.  Every  bank,  if  required  to  pay  its 
lotes  in  specie,  would,  in  that  case,  pay  with  that  species 
if  coin ;  and  the  whole  paper  circulating  medium  must, 
after  a  time,  depreciate  in  the  same  proportion.  The 
only  guard  against  the  abuse  and  consequent  deprecia- 
tion of  bank-paper  was  a  strict  adherence  to  the  prin- 
ciple that  payment  might  at  any  time  be  demanded  in 
specie  rated  at  its  intrinsic  value. 

The  second  question  was  "  of  a  more  doubtful  nature." 
Gallatin  affirmed,  that  if  it  should  be  thought  just  for 
the  community  to  bear  the  loss,  instead  of  individuals, 
it  would  certainly  be  preferable  to  pay  at  once  the  dif- 
ference rather  than  knowingly  to  make  the  coins  a  legal 
tender  at  a  higher  rate  than  they  were  worth.  If  the 
government  should  determine  to  bear  the  loss,  the  most 
simple  manner  of  effecting  the  object  would  be  "  to  direct 
the  mint  to  receive  that  species  of  gold  for  a  short  time 
at  the  former  statute  rate,  the  United  States  paying  the 
difference."  Quincy's  opinion,  however,  was,  that  what- 
ever equitable  considerations  might  exist  for  the  govern- 
ment to  pay  the  difference,  the  attempt  to  apply  relief 
would  prove  inexpedient  and  impracticable ;  for  it  was 
very  apparent  that  there  was  no  foundation  for  indem- 
nifying those  who  had  received  these  coins  subsequent 
to  the  10th  of  April,  1809,  when  the  law  making  them 
a  legal  tender  expired.  The  cases  in  which  present  hold- 
ers had  received  them  prior  to  that  time  were  doubtless 
so  very  rare  as  to  render  any  provision  for  their  relief 
unnecessary.  In  respect  of  the  banks,  the  specie  circu- 
lated through  them  in  such  a  manner  that  it  would  be 
hardly  possible  to  distinguish  the  coins  they  had  received 


174      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1810. 

since  the  10th  of  April,  1809,  from  those  received  before. 
Quincy  said,  that,  in  a  few  instances,  the  coins  might  be 
distinguished;  "yet  it  seemed  far  better  that  in  these 
the  loss  should  remain  where  it  had  fallen  than  that  the 
community  should  be  exposed  to  the  multiplied  frauds 
and  inconveniences  which  the  attempt  to  indemnify  upon 
any  general  principle  would  inevitably  introduce."  He 
might  have  added,  too,  that  the  inferior  value  of  these 
coins  to  their  legal  valuation  had  been  known  for  several 
years ;  so  that  most  persons,  and  especially  the  banks, 
were  not  deceived,  either  by  the  government  or  by  any 
one  else,  when  they  received  them.^ 

This  question  of  determining  who  should  bear  the  loss 
on  the  Spanish  gold  coins  recalls  forcibly  the  experiment 
of  the  British  Government  in  1695,  under  the  gifted  direc- 
tion of  Charles  Montague,  and  the  action  of  the  Turkish 
Government  under  Mahomet  IV,,  nearly  thirty  years 
earlier,  accepting  at  their  purported  value  the  debased 
themins  made  by  French  merchants,  and  exchanged  in 
vast  quantities  for  Turkish  goods  among  the  unsuspect- 
ing Turks  at  Constantinople.  But  Congress  did  nothing  ; 
so  that,  for  several  years,  foreign  coins  formed  no  part  of 
the  legal  monetary  circulation  of  the  country.  When  the 
matter  was  next  touched,  the  country  was  blazing  in  war 
with  Great  Britain. 

1  Quincy's  Report  on  Currency  of  Foreign  Coins,  Dec.  27,  1810,  2  Fi- 
nance, p.  456. 


1795.1  Hamilton's  administkation.  175 


CHAPTER  IX. 

HAMILTON'S   ADMINISTRATION. 

Hamilton  resigned  the  last  day  of  January,  1795.  Of 
all  the  departments  of  the  government,  the  most  impor- 
tant in  the  beginning  was  the  treasury.  The  very  exist- 
ence of  national  life  depended  on  the  successful  solution 
of  financial  questions.  How  these  were  solved  by  Ham- 
ilton we  have  already  seen.  He  opened  the  way  fur 
funding  the  national  debt.  He  devised  taxes,  and  regu- 
lated their  mode  of  collection.  He  founded  a  national 
bank,  the  great  importance  of  which  was  never  fully 
realized  until  it  ceased  to  exist.  He  established  a  mint, 
which,  although  blundering  at  first,  soon  proved  the  need 
of  its  existence.  He  created  an  admirable  system  of  ac- 
counts. All  these  were  parts  of  a  great  plan,  boldly 
designed,  and  which  admirably  fulfilled  what  its  author 
intended.  He  was  the  cyclopean  builder,  and  his  succes- 
sors did  but  little  more  than  to  fill  in  the  interstices  as 
they  were  discovered.  Though  parts  no  longer  exist, 
because  they  are  not  needed,  yet  enough  of  the  system 
still  remains,  like  the  mossy  monuments  of  a  great  city, 
to  bear  witness  to  its  former  grandeur. 

In  estimating  his  achievements,  it  must  be  remembered 
how  strongly  opposed  he  was  in  many  of  his  measures. 
In  some  cases  he  failed  entirely :  in  others,  his  measures 


178      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1795 

came  forth  from  Congress  so  marred  that  he  could  hardly 
recognize  them  as  his  own  creation.  Thus  the  bill  finally 
adopted  for  funding  the  indebtedness  of  the  government 
was  a  crude  and  patched  measure,  —  a  compromise  be- 
tween many  opposing  minds.  But  by  no  simpler  device 
could  an  agreement  be  reached. 

Another  cause  of  opposition  to  Hamilton's  measures  was 
their  centralizing  tendency.  It  was  clearly  seen  how  the 
funding  of  the  debts  of  individuals,  and  assuming  those 
of  the  States,  the  establishment  of  a  national  bank,  and 
all  the  corollary  measures  relating  to  the  laying  and  col- 
lection of  a  revenue,  strengthened  the  government  enor- 
mously ;  and  a  formidable  party  arose  in  opposition  to 
every  measure  having  such  a  tendency.  This  opposition 
was  cemented  and  led  by  Jefferson.  Doubtless  many 
opposed  Hamilton,  not  because  the}''  believed  he  was 
wrong,  but  to  destroy  his  influence.  Nearly  all  the  in- 
vestigations into  his  official  conduct  had  their  rise  in 
this  feeling.^  A  weaker  man  than  Hamilton  in  the  treas- 
ury department  would  have  failed  to  convince  Congress 
of  the  absolute  necessity  of  enacting  the  measures  which 
were  necessary  to  rescue  the  government  from  speedy 
destruction. 

Hamilton  won  a  higher  distinction  in  the  treasury  de- 
partment than  any  successor  is  ever  likely  to  attain.  This 
was  due,  partly  to  his  rare  ability,  and  partly  to  the  time 
in  which  he  lived.  There  was  a  happy  combination  of 
man  and  circumstance,  and  the  result  was  truly  wonder- 
ful. Had  he  been  in  the  treasury  department  during 
Crawford's  time,  doubtless  he  would   not  have   signally 

*  f^ibbs's  Adm..  vol.  i.  p.  81. 


X70-.1  Hamilton's  administration.  177 

distinguished  himself,  because  there  was  no  occasion  for 
exhibiting  any  remarkable  financial  genius. 

Another  cause  contributed  to  Hamilton's  success.     He 
was  the  man  in  whom  most  of  the  financial  knowledge 
of  his  own  party  was  concentrated.     The  other  members 
readily  acknowledged  him  as  their  financial   Moses,  who 
was  competent  to  lead  the  people  out  of  darkness  into  the 
smiling  day.     No  one  disputed  the  leadership  with  him  in 
his  chosen  field.     On  the  other  side  there  was  no  financial 
talent  whatever  until  179-i,  when    Gallatin    entered   the 
House.     During  his  short  service  in  the  Senate  he  did 
little  beside   call  for  a  statement  of  the   domestic  debt. 
When  he  appeared  in  the  other  branch  of  Congress,  he 
found    that   ''the  financial  department,"  to  use  his  own 
words,  "  was  quite  vacant "  with  respect  to  representation 
by  his  own  party.     This  is  why,  having  made  himself  com- 
plete master  of  the  subject,  he  occupied  that  field  almost 
exclusively,  and  was  chosen  financial  leader  by  the  Repub- 
lican party  when  they  came  into  power.i 

1  Gallatin  left  a  fragmentary  memoran.lum  of  his  congressional  service, 
in  which  he  says,  after  entering  the  House,  "My  first  step  was  to  have  a 
standing  committee  of  ways  and  means  appointed.  That  this  should  not 
have  been  sooner  done,  proves  the  existing  bias  in  favor  of  increasing  as 
far  as  possible  the  power  of  the  executive  branch.  The  next  thing  was  to 
demonstrate  that  the  expenditure  had,  till  then,  exceeded  the  income. 
The  remedy  proposed  was  economy.  Economy  means  order  and  skill ; 
and,  after  having  determined  the  proper  and  necessary  objects  of  expense, 
the  Legislature  cannot  enforce  true  economy  otherwise  than  by  making  spe- 
cific appropriations.  Even  these  must  be  made  with  due  knowledge  of  the 
subject  ;  since,  if  carried  too  far,  by  too  many  subdivisions,  they  become 
injurious,  if  not  impracticable.  This  subject  has  ever  been  a  bone  of 
contention  between  the  legislative  and  executive  branches  in  every  repre- 
sentative government,  and  it  is  in  reality  the  only  proper  and  efficient  legis- 
lative  check  on  executive  prodigality."  -  Adams's  Life  of  Gallatin,  p.  157. 


178      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1795. 

It  is  true,  when  Hamilton  resigned,  there  had  been  no 
reduction  of  the  national  debt.  But  this  was  no  fault  of 
his,  nor  of  any  one.  It  was  a  gigantic  task  to  organize 
the  treasury  department,  and  provide  funds  for  paying 
the  interest,  in  addition  to  the  annual  expenses  of  the 
government.  The  people  were  not  accustomed  to  paying 
taxes,  especially  when  laid  and  collected  by  a  general 
government.  The  payment  of  them  did  not  come  easily. 
Moreover,  the  government  was  so  unfortunate  as  to  be- 
come involved  in  some  heavy,  unexpected  expenditures, 
which  no  statesmanship  could  have  prevented.  These 
occurred  at  a  time,  too,  when  the  government  could  ill 
afford  to  divert  its  funds  from  any  other  than  its  ordinary 
purposes.  Keeping  these  facts  before  us,  did  not  Hamil- 
ton accomplish  as  much  in  the  way  of  discharging  the 
public  obligations  as  any  person  could  have  done  ? 

No  annual  report  was  required  of  the  secretary  of  the 
treasury  until  the  opening  of  the  new  century.  Had  the 
law  then  passed  been  enacted  earlier,  Hamilton  might 
have  been  spared  much  of  the  trouble  to  which  he  was 
subjected  of  making  frequent  reports.  Yet  it  is  true  that 
some  of  these  were  demanded  more  to  annoy  him  than  to 
obtain  information.  He  certainly  thought  so,  and  he  had 
reasons  for  entertaining  such  an  opinion.  How  these  in- 
quiries interfered  with  his  other  duties,  and  how  he  was 
vexed  by  them,  may  be  learned  from  his  own  writings. 
"The  occupations  necessarily  and  permanently  incident 
to  the  office  are  at  least  sufficient  fully  to  occupy  the 
time  and  faculties  of  one  man.  The  burden  is  seriousl}^ 
increased  by  the  numerous  private  cares,  —  remnants  of 
the  late  war,  which,  every  session,  are  objects  of  particular 


1795.1  HAMILTON'S    ADMINISTRATION.  179 

reference  by  the  two  Houses  of  Congress.  These  accumu- 
lated occupations,  again,  have  been  interrupted  in  their 
due  course  by  unexpected,  desultory,  and  distressing  calls 
for  lengthy  and  complicated  statements,  —  sometimes  with 
a  view  to  general  information ;  sometimes  for  the  explana- 
tion of  points  which  certain  leading  facts,  witnessed  by  the 
provisions  of  the  laws  and  by  information  previously  com- 
municated, might  have  explained  without  those  state- 
ments, or  which  were  of  a  nature  that  did  not  seem  to 
have  demanded  a  laborious,  critical,  and  suspicious  inves- 
tis-ation,  unless  the  officer  was  understood  to  have  for- 
feited  his  title  to  a  reasonable  and  common  degree  of 
confidence."  ^ 

It  has  been  said  that  Hamilton  borrowed  many  of  his 
ideas  from  the  English  system  of  finance.  Funding  had 
lono-  been  known  in  the  history  of  governments.  But 
though  the  principle  of  funding  was  an  old  one,  the  prac- 
tical application  of  it  by  Hamilton  was  involved  in  enor- 
mous difficulties.  The  idea  was  a  new  one  here;  and, 
while  the  general  opposition  to  the  adoption  of  the  princi- 
ple was  strong,  the  opposition  to  the  practical  application 
of  it  at  every  step  was  immensely  heightened. 

So,  too,  tlie  pledging  of  the  revenues  for  loans  was  a 
new  principle.  To  make  credit  immortal,  he  declared 
that  every  debt  must  be  accompanied  with  the  means  of 
extinguishment.  This  principle  he  sought  to  apply  in 
every  instance.  The  only  exception  was  that  of  the  Al- 
gerii^e  loan  for  one  million  dollars.  When  that  was 
authorized,  no  revenues  were  pledged  for  its  payment; 
and  the  failure  of  Congress  to  do  so  was  the  chief  cause, 

1  Letter  to  Senate,  Feb.  22, 1794,  Adams's  Life  of  Gallatin,  p.  116.  note. 


180      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1795. 

Hamilton  believed,  why  the  money  needed  could  not  be 
obtained. 

Hamilton  exerted  a  tremendous  influence  in  his  party, 
notwithstanding  the  efforts  of  jealous  aspirants  to  pull 
him  down.  Of  these,  Jefferson  and  Madison  were  for 
a  considerable  period  the  most  active.  But  there  was  a 
great  difference  between  the  modes  of  warfare  adopted 
by  them.  Madison  resorted  to  no  secret  or  unfair  means 
to  undermine  Hamilton  ;  while  Jefferson  never  scrupled 
on  the  grounds  of  conscience  or  of  honor  to  overthrow 
any  one  whom  he  thought  stood  in  the  way  of  his 
advancement,  or  that  endangered  the  security  of  his 
position.^ 

Wolcott  was  appointed  secretary  of  the  treasury  two 
days  after  Hamilton's  resignation.  He  was  a  thorough 
believer  in  the  financial  views  of  Hamilton,  and  was  per- 
mitted to  remain  long  enough  to  develop  the  system 
already  begun.  Wolcott  was  not  brilliant ;  but  he  was 
honest  to  the  core,  familiar  Avith  all  the  details  of  the 
treasury  department,  and  his  fitness  for  the  place  was  not 
questioned  by  any  one.  Having  always  attended  closely 
to  his  official  duties,  he  had  never  found  leisure  to  enter 
the  arena  of  active  politics :  perhaps  such  an  inclination 
had  never  been  aroused.  He  brought  no  political  strength, 
therefore,  into  the  cabinet.  On  the  other  hand,  he  was 
saved  from  many  attacks  like  those  which  Hamilton  had 
been  obliged  to  face,  —  a  gain  to  himself,  his  party,  and 
his  country.  Had  he  been  more  prominent  as  a  politician, 
doubtless  he  would  have  been  oftener  assailed.  As  he 
was  seen  to  be  purely  a  business  official,  a  general  disposi- 

1  Hamilton's  Hist,  of  Repub.,  vol.  v.  pp.  129-135. 


1795.]  HAMILTON  S   ADMINISTRATION.  181 

tion  was  shown  to  suffer  him  to  manage  the  affairs  of  his 
office  in  peace.    . 

The  administration  of  the  treasury  department  by  Wol- 
cott  was  tame  compared  with  that  of  his  gifted  prede- 
cessor. When  Hamilton  began,  chaos  existed  throughout 
the  entire  region  of  public  finance.  Every  thing  was  to 
be  done,  and  the  work  required  the  very  highest  order 
of  ability.  But  Hamilton  was  equal  to  the  task.  He 
truly  marked  a  new  renaissance  in  finance.  Such  a  condi- 
tion of  things  is  never  likely  to  return-  It  was  the  one 
occasion  on  which,  if  the  man  appeared  equal  to  it,  he 
was  sure  to  win  a  fame  as  permanent  as  the  existence  of 
the  nation  for  which  the  work  should  be  done.  Probably 
it  was  the  desire  to  see  his  system  as  nearly  completed  as 
possible  which  led  him  to  remain  in  office  for  a  consider- 
able period  after  the  place  had  become  uncongenial  to 
him.  It  is  true  that  he  had  the  confidence  of  Wash- 
ington to  the  end,  and  on  every  side  there  were  strong 
friends ;  but  he  had  numerous  enemies,  who  were  both 
watchful  and  harmful,  and  they  never  fiiiled  to  throw  a 
dart  at  him  whenever  they  saw  him  exposed.  On  the  last 
day  of  January,  1795,  he  retired  from  office,  having  ac- 
complished a  prodigious  work,  on  which  later  generations 
look  with  admiring  wonder.^ 

1  He  had  just  passed  his  thirty-eighth  year.  —  Hist,  of  Eepub.,  vol.  vi- 
p.  191. 


182      FINANCIAL  HISTOKY  OF  THE  UNITED  STATES.       [1789. 


CHAPTER   X. 

APPROPKIATION   BILLS,   HOW    FORMED    AND    CONSTRUED. 

To  enable  Congress  to  form  an  intelligent  judgment  of 
the  amount  of  revenue  annually  needed,  the  secretary 
of  the  treasury  has  always  been  required  to  furnish  esti- 
mates of  the  probable  expenditures  of  the  government. 
These  are  furnished  at  an  early  day  of  the  session,  and 
form  the  basis  of  appropriations. 

At  first  the  estimates  were  very  general,  and  often 
without  explanations  and  suggestions,  —  a  mere  naked 
estimate  of  the  amount  needed  for  the  army,  navy,  and 
other  departments.  After  a  few  years  the  appropriations 
grew  more  specific.  When  Gallatin  became  a  member 
of  the  House,  in  1794,  he  labored  earnestly  to  make  them 
still  more  minute,  and  not  without  success.  Wolcott, 
who  succeeded  Hamilton  in  the  treasury  department,  did 
not  like  the  requirement :  he  thought  it  was  established, 
not  in  the  interest  of  good  government,  but  in  opposition 
to  it.  He  wrote  to  Hamilton,  "  The  management  of  the 
treasury  business  becomes  more  and  more  difficult.  The 
Legislature  will  not  pass  laws  in  gross :  their  appro- 
priations are  minute.  Gallatin,  to  whom  they  yield,  is 
evidently  intending  to  break  down  this  department  by 
charging  it  with  impracticable  details."  Yet  Gallatin 
was  trying  to  do  no  such  thing.     It  is  impossible  to  be 


1793.]  APPROPRIATION   BILLS.  183 

too  minute  and  careful  in  making  public  appropriations. 
The  more  closely  these  measures  are  scanned,  the  less 
danger  there  is  of  voting  money  for  foolish  or  dishonest 
purposes.  Wolcott  was  an  honest  servant,  but  he  did 
not  see  the  danger  of  contiuuing  the  plan  of  appropriat- 
i]ig  money  first  adopted.  Appropriation  bills,  however 
specific,  always  have  unguarded  places  through  which  the 
public  funds  slip,  and  are  wasted. 

Until  the  advent  of  Gallatin  in  the  treasury  depart- 
ment. Congress  specified  the  revenues  from  which  appro- 
priations should  be  paid.  In  some  cases  several  funds 
Avere  designated  for  that  purpose.  But  Gallatin  changed 
the  custom,  and,  from  the  beginning  of  his  administra- 
tion, there  was  only  a  general  reference  to  the  source 
whence  appropriations  should  be  drawn. 

In  1792  the  general  appropriation  bill  was  far  more 
elaborate  than  any  former  one.  The  next  year  a  new 
feature  was  added :  the  President  was  authorized  to  bor- 
row money  in  anticipation  of  the  revenue.  Appropria- 
tions were  made  for  special  purposes  at  every  session  of 
Congress ;  and  generally,  near  the  close,  a  bill  was  passed 
containing  all  the  appropriations  not  included  in  previous 
enactments.  For  many  years  the  custom  was  observed 
of  passing  the  general  bill  early  in  the  session,  —  a  cus- 
tom, which,  if  renewed,  would  be  attended  with  good 
results.  The  bill  would  be  put  more  prominently  before 
the  public  eye  :  it  would  be  examined  with  greater  care, 
and  there  would  be  less  danger  of  voting  money  for 
corrupt  schemes. 

Two  years  later,  appropriations  for  military  and  Indian 
purposes  were  put  in  a  separate  bill,  and  were  kept  there 


184      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1793. 

for  many  years.  It  is  true,  that  in  the  general  bill,  as 
well  as  in  the  special  one,  and  also  in  the  miscellaneous 
bill,  might  be  found  appropriations  for  the  army  and  for 
the  Indians:  nevertheless,  the  custom  had  been  begun 
of  framing  what  may  be  regarded  as  the  second  regular 
appropriation  bill.  For  the  next  three  years  the  appro- 
priations for  the  army,  navy,  and  Indians,  were  included 
in  a  single  annual  bill ,  but  in  1798  the  navy  department 
was  created,  and  for  that  year  the  appropriations  for 
the  navy  were  mingled  with  others  of  a  miscellaneous 
nature.  The  next  year,  1799,  the  third  regular  annual 
appropriation  bill  was  passed,  making  appropriations  for 
the  navy  department.  These  were  the  only  regular  ap- 
propriation bills  until  1828,  when  a  fourth  bill,  appropri- 
ating money  for  the  construction  of  fortifications,  was 
passed,  and  annually  thereafter.  The  first  appropriation 
bill  for  deficiencies  was  passed  in  1804. 

Beside  the  special  and  general  appropriation  bills,  a 
very  large  amount  of  money  was  expended  annually  by 
virtue  of  permanent  appropriations  for  salaries,  interest, 
and  the  like.  For  several  years  there  was  a  standing  ap- 
propriation of  forty  thousand  dollars  for  defraying  the 
expenses  of  foreign  intercourse:  then  the  law  was  re- 
pealed, and  the  appropriation  for  this  purpose  was  included 
in  the  general  bill. 

Having  described  the  mode  of  making  appropriations, 
let  us  now  trace  the  application  of  the  money  appropri- 
ated. It  was  drawn  from  the  treasury  by  virtue  of  war- 
rants signed  by  the  secretary,  and  countersigned  by  the 
comptroller,  and  was  paid  to  the  officers  or  agents  to  whom 
the  same  was  due,  or  who  were  intrusted  with  its  appli- 


1794.]  APPROPRIATION   BILLS.  185 

cation  ;  or,  if  belonging  to  the  war  or  navy  departments, 
it  was  placed  in  the  hands  of  the  treasurer  as  agent  for 
those  departments,  who  disbursed  it  on  warrants  drawn  by 
the  secretary  of  war  or  of  the  navy,  and  countersigned 
by  the  war  or  navy  accountant.^ 

In  some  instances,  however,  money  was  paid  from  the 
treasury  on  a  simple  letter  addressed  by  the  secretary  of 
the  treasury  to  the  treasurer.  Such  payments  were  after- 
ward covered  by  warrants.  ^  Sometimes  money  was  in- 
formally paid  by  the  treasurer,  or  advanced  by  the  Bank 
of  the  United  States,  before  an  appropriation  had  been 
made  by  law  to  cover  the  expense  for  which  the  mone}^ 
was  advanced.  In  every  case  like  this  the  payment  was 
authorized  by  a  subsequent  appropriation. 

It  may  also  be  noted,  that  occasionally  money  was  ad- 
vanced by  the  collectors  of  the  revenue  from  funds  in 
their  j)ossession  before  they  had  been  drawn  into  the 
treasury.  The  two  principal  objects  of  expenditure  to 
which  this  exception  to  the  general  rule  applied,  were  a 
portion  of  the  expenses  incident  to  the  courts  of  the 
United  States,  which  were  advanced  by  the  collectors 
of  the  customs  to  the  marshals,  and  those  incident  to  the 
ordinary  support  and  repair  of  lighthouses,  buoys,  and 
piers,  which  were  generally  defrayed  in  the  same  manner. 
In  those  cases,  warrants  were  issued  as  though  the  money 
expended  had  been  previously  drawn  into  the  treasury, 
and  had  been  afterward  paid  to  the  revenue  officers  to 
enable  them  to  defray  the  expense. 

Although  the   construction  given  by  the  treasury  de- 

1  Nicholson's  Report  on  the  Application  of  Public  Money,  April  29, 
1802, 1  Finance,  p.  752. 


186      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1795. 

partment  to  appropriation  laws  was  not  always  uniform, 
yet,  for  several  years  during  the  earlier  history  of  the 
government,  all  money  appropriated  for  the  annual  sup- 
port of  the  army  and  navy  respectively  was  regarded  as 
one  general  appropriation  for  each  of  those  two  objects, 
and  was  indiscriminately  applied  to  every  distinct  object 
of  expenditure  embraced  under  those  two  general  heads. 

The  appropriations  for  the  Indian  department  and  for 
fortifications  were  generally  blended  with  those  of  the 
war  department.  But  there  were  certain  appropriations 
relating  to  the  army  and  navy  which  were  regarded  as 
wholly  separated  from  the  rest.  These  related  to  the  pur- 
chase of  cannon,  arms,  ammunition,  and  military  stores, 
to  the  leasing  of  foundries  and  armories,  to  the  forti- 
fications of  certain  harbors,  to  the  purchase  of  land  with 
growing  timber,  to  the  erection  of  two  docks,  and  to  the 
purchase  and  building  of  several  vessels.  Likewise,  the 
appropriations  for  the  public  debt,  the  civil  department, 
the  mint,  lighthouses,  census,  etc.,  and  for  foreign  ex- 
penses, were  considered  applicable  only  to  the  object  for 
which  they  were  appropriated. 

The  impolicy  of  continuing  appropriations  in  force  for 
an  indefinite  period  induced  Congress  to  enact  that  any 
appropriations,  except  certain  permanent  ones,  remaining 
unexpended  for  more  than  two  years  after  the  expiration 
of  the  year  in  which  they  were  granted,  should  cease,  and 
the  amount  unexpended  be  carried  to  an  account  on  the 
books  of  the  treasury  called  the  "  surplus  fund."  By 
the  operation  of  this  law,  no  ordinary  appropriation  sur- 
vived the  specified  period  of  two  years;  and,  notwith- 
standing the  formal  designation  of  the  particular  account 


1792.]  APPROPKIATION    BILLS.  187 

in  which  the  entry  was  made,  the  money  was  disengaged, 
and  became  an  undistinguishable  part  of  the  public  treas- 
ure, and  subject  to  the  future  disposition  of  Congress.^ 

Hamilton  remarked,  in  one  of  his  reports,  that  "occa- 
sions occur  from  time  to  time,  which  fall  under  no  stated 
head  of  expenditure,  for  which  provision,  in  some  mode 
or  other,  is  necessary."  He  instanced  the  apprehension 
and  punishment  of  several  counterfeiters  of  the  govern- 
ment securities.  He  inquired  whether  the  appropriation 
of  a  moderate  sum,  to  be  spent  by  the  order  of  the  Presi- 
dent, would  not  be  judicious.  Such  a  thing  has  beei: 
done,  but  Congress  can  never  exercise  too  much  caution 
in  appropriating  money  in  this  manner.  Good  governing 
requires  the  utmost  particularity  and  publicity  in  granting 
appropriations,  and  in  expending  them. 

When  the  government  had  been  in  operation  a  littk- 
longer  than  ten  years,  there  was  an  investigation  con- 
cerning the  application  of  the  public  money.  In  several 
cases  it  was  discovered  that  it  had  been  paid  without 
legal  authority :  in  others,  it  had  been  misapplied.  There 
were  two  requisites  to  justify  the  legal  exjDenditure  of 
public  money,  —  first,  an  authorization  of  the  expendi- 
ture ;  second,  an  appropriation  to  cover  the  expense. 
These  rules  had  not  been  observed  in  all  cases,  especially 
in  the  war  and  navy  departments.  Indeed,  it  was  be- 
lieved that  "  considerable  sums  of  public  money  had  been 
greatly  misapplied,  and  that  much  expense  had  been  in- 
curred without  any  legal  authority."  Wolcott  published 
an  elaborate  defence  of  the  action  of  the  treasury  depart- 
ment, in  which  he  explained  all  the  transactions  contained 

1  Dallas's  Annual  Report,  December,  1815. 


188      FINAMCIAL  HISTORY  OF  THE  UNITED  STATES.       [1803. 

in  the  report  of  the  committee  of  investigation.  He  jus- 
tified some  of  the  expenditures  by  appealing  to  "•  estab- 
lished usage,"  which  was  "  equivalent  to  a  written  law."  ^ 

A  single  illustration  may  be  given  to  show  how  loosely 
the  public  funds  were  disbursed  in  those  days.  A  law 
had  been  passed  in  1793  authorizing  the  secretary  of  state 
to  make  simply  a  certificate  of  the  amount  of  money 
expended  in  certain  ways  known  as  "secret  services," 
which  were  to  be  taken  as  vouchers  for  the  expenditure 
of  the  sums  represented.  Without  legal  authority  this 
mode  of  certifying  to  expenditures  was  extended  to  the 
war  and  navy  departments.  Subsequently  the  custom 
was  condemned  by  a  committee  of  Congress,  who  enter- 
tained "  no  doubt  as  to  its  legality." 

The  same  committe'e  remarked  that  appropriations  for 
the  contingencies  of  the  war  and  navy  departments  were 
at  all  times  liable  to  abuses,  not  onl}^  from  the  very  large 
sums  usually  appropriated  therefor,  but  also  from  the  im- 
practicability of  specifying  by  law  the  precise  objects  to 
wljich  such  sums  were  applicable.  The  remedy  they 
suggested  was  the  publication  of  all  accounts  of  this 
kind.  Nor  could  any  possible  inconvenience  be  discov- 
ered in  making  such  a  disclosure,  since  there  was  no 
necessity  nor  propriety  for  applying  the  principle  of 
secret-service  money  to  either  department. 

Although  no  reformatory  legislation  was  generated  by 

1  Address  to  the  People  of  the  United  States,  p.  6.  Wolcott  justly  com- 
plained of  the  way  in  which  the  committee  performed  their  work  ;  for  tlie 
majority  conducted  the  investigation,  and  said  nothing  to  the  minority 
until  their  report  was  ready  to  be  presented  to  the  House  (Ibid.,  p.  1). 
Such  a  method  of  investigation  reflects  no  credit  on  those  who  took  part 
in  it,  whatever  may  be  the  facts  and  conclusions  contained  in  their  report. 


1808.]  APPROPRIATION   BILLS.  189 

this  investigation,  the  several  departments  improved  their 
modes  of  doing  business.  Thereafter  every  warrant  drawn 
for  money  specified  the  particular  appropriation  to  which 
it  would  be  charged.  Some  exceptions  were  made  in  the 
navy  department  respecting  contingent  expenses  incurred 
at  distant  places.^  Many  defects,  though,  which  experi- 
ence had  clearly  brought  to  light,  still  remained  without 
a  remedy. 

In  1808  the  secretaries  of  the  treasury  and  navy  and 
of  war,  and  the  postmaster-general,  were  required  to  lay 
before  Congress  an  annual  statement  of  all  the  contracts 
made  in  their  respective  departments,  and  all  the  particu- 
lars relating  thereto ;  and  by  the  same  Act  members  of 
Congress  were  prohibited  from  becoming  interested  in  any 
contract  to  which  the  government  was  a  party .^  The  next 
year  Gallatin  laid  a  communication  before  the  House,  point- 
ing out  what  reforms  were  needed  in  making  advances,  and 
accounting  for  public  money  in  the  war  and  nav}'  depart- 
ments. Congress  then,  for  the  first  time,  bestowed  that 
attention  to  the  subject  which  its  importance  demanded. 

It  was  enacted  that  every  warrant  drawn  by  the  secre- 
tary of  the  treasury,  or  of  war,  or  of  the  navy,  on  the 
treasurer,  should  specify  the  particular  appropriation  to 
which  it  should  be  charged.  The  officers,  agents,  or  other 
persons  who  received  public  money,  were  required  to  ren- 
der accounts  of  its  application ;  and  the  secretary  of  war 
and  of  the  navy  were  required  to  report  to  Congress  annu- 
ally an  account  of  the  expenditure  and  application  of  all 


1  Secretary  of  the  Navy's  Letter,  in  Giles's  Report,  Feb.  25,  1809,  2  Fi- 
nance, p.  348. 

2  Act,  April  21,  1808,  10  Cong.,  first  session,  chap.  48. 


190      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1809. 

money  drawn  from  the  treasury  prior  to  the  end  of  Septem- 
ber preceding.  Moreover,  the  law  provided  that  the  ap- 
propriations for  each  branch  of  expenditure  in  the  several 
departments  should  be  solely  applied  to  the  objects  for 
which  they  were  respectively  appropriated,  and  to  no  other. 
The  law  contained  the  following  noteworthy  provision  ; 
During  the  recess  of  Congress  the  President  was  author- 
ized, on  the  application  of  the  secretary  of  the  proper 
department,  to  direct,  if  in  his  opinion  the  necessity  of  the 
public  service  required  such  an  expenditure,  that  a  portion 
of  the  money  appropriated  for  a  particular  branch  of  ex- 
penditure in  that  department  be  applied  to  another  branch 
in  the  same  department,  in  which  case  a  special  account 
of  the  money  thus  transferred,  and  of  its  application,  was 
to  be  laid  before  Congress  early  the  next  session. 

Congress  provided,  also,  for  the  settlement  of  accounts ; 
and  all  that  remained  unsettled  for  a  period  of  three  3'ears 
were  to  be  reported  annually  during  the  first  week  in 
ever}^  session.  The  mode  of  appointing  persons  to  make 
contracts  was  regulated ;  and  they  were  directed  to  make 
their  purchases,  either  openly,  or  by  previously  advertising 
for  proposals.  The}'  were  required  to  render  an  annual 
statement  of  their  doings ,  and  several  other  provisions 
were  added  for  the  more  efficient  discharge  of  the  public 
business  in  making  purchases,  and  accounting  for  the  public 
money.^  Thus,  in  the  twenty  years  that  had  elapsed  since 
the  formation  of  the  government,  there  was  a  great  advance 
in  this  direction.  But  the  government  moved  very  slowly 
to  suffer  so  long  a  period  to  pass  before  introducing  the 
reforms  the  need  of  which  had  long  been  clearly  seen. 

1  Act,  March  3,  1809,  10  Cong.,  second  session,  chap.  28. 


1789.1 


APPI10PKIATI0>'S   A^'D   EXPE^^DITURES.        191 


CHAPTER  XI. 

APPROPRIATIONS    AND   EXPENDITURES. 
1789-1800. 

Having  shown  how  appropriation  bills  were  formed 
durino-  the  earlier  days  of  the  government,  we  have  already 
entered  a  very  extended  field,  which  is  well  worth  careful 

cultivation. 

On  what  grounds  did  the  secretary  of  the  treasury  base 
his  estimate  of  probable  receipts  and  expenditures,  and 
how  did  the  actual  receipts  and  expenditures  vary  there- 
from, and  what  were  the  causes  of  the  variation  ?    Again : 
how  wisely  or   unwisely  were   the   expenditures   made? 
Were  the  revenues  drawn  from  the  best  sources,  and  col- 
lected  in  the  most  economical  and  judicious  ways?     If 
not,  how  could  Congress  have  ordered  with  greater  wis- 
dom?-these   and  many  more  equally  important   ques- 
tions lie  in  the  domain  we  are  about  to  explore. 

The  constitution  has  provided  that  "no  money  shall 
be  drawn  from  the  treasury  but  in  consequence  of  appro- 
priations made  by  law."  The  first  appropriation  bill  was 
passed  in  1789,^  and  provided  for  the  following  year.  As 
the  treasury  department  was  not  then  created,  a  com- 
mittee  were  appointed  to  make  an  estimate  of  the  expendi- 
ture and  revenue  of  the  government.  Gerry,  who  had 
1  Act,  Sept.  29, 1  Cong.,  first  session,  cbap.  23. 


192      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1789. 

served  for  several  years  as  a  member  of  the  board  of 
treasury  under  the  Confederation,  was  chairman. 

The  income  from  imports  was  estimated  at  $1,467,- 
086,03.  This  sum  was  insufficient  to  pay  more  than 
a  small  portion  of  the  estimated  expenditures.  Conse- 
quently, no  appropriations  were  made  for  interest,  or  for 
paying  any  portion  of  the  foreign  or  domestic  debt.  The 
payment  of  interest  on  the  latter  was  deferred :  that  due 
on  the  foreign  debt  was  paid  from  the  proceeds  of  loans 
negotiated  abroad.^ 

The  entire  appropriation  consisted  of  the  following- 
items  :  "  a  sum  not  exceeding  $216,000,  for  defraying  the 
exjDenses  of  the  civil  list  under  the  late  and  present  gov- 
ernment; a  sum  not  exceeding  $137,000,  for  paying  the 
expenses  of  the  department  of  war ;  a  sum  not  exceeding 
$190,000,  for  discharging  warrants  issued  by  the  late  board 
of  treasury,  and  remaining  unsatisfied  ;  and  a  sum  not 
exceeding  $96,000,  for  paying  the  pensions  of  invalids.'' 
How  great  the  contrast  between  this  bill  and  the  appro- 
priation bills  now  annually  passed !  ^  The  first  special 
appropriation  was  $20,000  for  defraying  the  expense  of 
negotiating  with  the  Indians.^ 

The  revenues  were  derived  from  imports,  and  the  sale 
of  public  lands.  Afterward  internal  taxes  were  added  ; 
and,  lastly,  the  government  resorted  to  direct  taxation. 
Additional  resources  were  derived  from  loans ;  but  these, 

1  Gerry'a  Reports  on  Estimates,  July  9,  Aug.  27,  Sept.  24, 1789, 1  Finance, 
p.  11.    Baldwin's  Report,  May  22,  1794. 

2  In  the  appropriation  bill  of  the  next  year  was  the  sum  of  $10,000  for 
contingent  expenses,  which  the  President  was  authorized  to  draw.  Act, 
March  20,  1790,  1  Cong.,  second  session,  chap.  4. 

8  Aug.  20,  1789. 


1794.]  APPROPRIATIONS   AND   EXPENDITURES.  193 

of  course,  were  repaid :  the  money,  therefore,  obtained  in 
this  way,  was  simply  in  anticipation  of  the  public  reve- 
nues. 

Heavy  as  was  the  burden  of  sustaining  the  new  govern- 
ment, it  had  not  been  long  in  operation  before  an  increase 
was  inevitable.  A  war  broke  out  on  the  frontier  with  the 
Indians,  which  required  fresh  outlays  of  money.  Then 
the  whiskey  insurrection  occurred,  which  cost  the  govern- 
ment a  considerable  sum.  Not  long  afterward  the  Alge- 
rine  difficulty  arose.  These  exigencies  were  unavoidable, 
and  appropriations  were  passed  therefor  without  much  con- 
tention. The  Republicans,  it  is  true,  sought  to  acquire 
political  capital  from  the  settlement  with  Algeria ,  but 
they  did  not  succeed  in  their  endeavor. 

The  appropriation  for  creating  a  navy  was  the  first  that 
caused  severe  party  clashing.  American  commerce  was 
subjected  to  so  many  insults  in  the  Mediterranean,  that 
the  Federalists  favored  the  formation  of  a  navy  to  resist 
all  aggressions.  In  1794  our  affairs  with  Great  Britain 
were  threatening.  The  Republicans  proposed  to  purchase 
peace  with  Algiers  with  money,  rather  than  to  build  a 
navy,  and  win  peace  with  a  sword.  In  regard  to  the 
troubles  with  England,  the  Republicans  did  nothing  to 
heal  them.  Finally  it  was  voted  to  begin  the  construc- 
tion of  a  few  frigates,  to  be  discontinued  as  soon  as  peace 
should  be  declared  with  Algeria.  As  the  expenditure 
required  additional  revenue,  parties  antagonized  over  the 
mode  of  raising  it.  The  Republicans  favored  the  levy 
of  a  direct  tax  ;  the  Federalists,  the  increase  of  internal 
taxes.  The  object  of  the  Republicans  in  advocating  a 
direct  tax  was  to  provoke  enough  opposition  to  the  Fed- 


194      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1795. 

eralists  to  drive  them  from  power.^  In  1796,  no  peace 
having  been  effected,  authority  was  granted  for  building 
three  frigates.  These  were  finished,  —  the  "  Constitu- 
tion," "•  Constellation,"  and  the  "  United  States."  The 
intensity  of  the  Republican  opposition  to  this  policy  did 
not  abate.2 

With  Gallatin  the  question  was,  whether  the  creation 
of  a  navy  should  be  postponed  to  the  payment  of  the 
public  debt,  or  whether  the  opposite  policy  should  pre- 
vail. He  was  a  stout  adherent  of  the  former  view.  In 
the  session  of  1795-96,  when  appropriations  for  the  three 
frigates  just  mentioned  were  wanted,  he  said,  "I  am  sensi- 
ble that  an  opinion  of  our  strength  will  operate  to  a  certain 
degree  on  other  nations,  but  I  think  a  real  addition  of 
strength  will  go  farther  in  defending  us  than  mere  opin- 
ion. If  the  sums  to  be  expended  to  build  and  maintain 
the  frigates  were  applied  to  paying  a  part  of  our  national 
debt,  the  payment  would  make  us  more  respectable  in  the 
eyes  of  foreign  nations  than  all  the  frigates  we  can  build. 
To  spend  money  unnecessarily  at  present  will  diminish 
our  future  resources,  and,  instead  of  enabling  us,  will 
perhaps  render  it  more  difficult  for  us,  to  build  a  navy 
some  years  hence.  .  .  .  Perhaps  I  may  be  asked  if  we 
are  then  to  be  left  without  protection.  I  think  there  are 
means  of  protection  which  arise  from  our  peculiar  situa- 
tion, and  that  we  ought  not  to  borrow  institutions  from 
other  nations,  for  which  we  are  not  fit.  If  our  commerce 
has  increased,  notwithstanding  its  want  of  protection ;  if 
we  have  a  greater  number  of  seamen  than  any  other 
nation  except  England,  —  this,  I  think,  points  out  the  way 

1  Gibbs's  Adm.,  vol.  i.  pp.  122,  141.  2  Ibid.,  p.  349. 


1798.]  ArPROPRIATIONS    AND    EXPENDITURES.  195 

in  which  commerce  ought  to  be  protected.  The  fact  is, 
that  our  only  mode  of  warfare  against  European  nations 
at  sea  is  by  putting  our  seamen  on  board  privateers,  and 
covering  the  sea  with  them  :  these  would  annoy  and  dis- 
tress them  more  than  any  other  mode  of  defence  we  can 
adopt."  1 

Such  was  the  ground  taken  by  Gallatin  and  his  party  ; 
and  were  they  not  essentially  right?  Giving  credit  to  the 
glorious  victories  won  by  the  three  frigates  then  con- 
constructed  in  the  war  of  1812,  what  struck  terror  into 
the  British  heart  was  not  the  loss  of  a  few  men-of-war, 
but  the  depredations  committed  on  her  commerce  by 
American  privateers.  Gallatin  clearly  saw  that  the 
United  States  was  isolated  from  the  nations  of  the  Old 
World,  and  that  the  ocean  could  be  surpassed,  in  the 
completeness  of  its  protection,  only  by  a  sea  of  fire.^ 

No  sooner  had  the  Algerine  difficulty  been  settled,  and 
affairs  with  Great  Britain  adjusted,  than  the  nation  was 
agitated,  not  by  a  celestial  visitant,  but  by  our  late  be- 
loved French  ally.  Her  attitude  was  so  threatening,  that 
renewed  preparations  for  war  became  necessary.  The 
building  of  war-ships  was  continued,  the  Republicans 
maintaining  their  opposition.  Fortifications  were  con- 
structed, and  troops  were  enlisted.  A  navy  department 
was  now  created.  But  how  were  the  expenses  to  be 
paid?  The  Committee  of  Ways  and  Means  requested  the 
secretary  of  the  treasury  to  state  the  amount  that  would 
probably  be  required  for  these  purposes,  and  the  probabil- 
ity of  obtaining  a  permanent  loan  of  #5,000,000  in  irre- 
deemable stock,  based  on  new  revenues,  with  an  efficient 

i  Adams's  Life  of  Gallatin,  p.  170.  ^  Ibid.,  pp.  170,  217. 


19G      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1798. 

sinking-fund.  Wolcott  estimated  a  decline  of  $500,000 
in  import  duties  in  consequence  of  spoliations  and  stop- 
pages of  commerce ;  but  the  internal  revenues,  he  be- 
lieved, would  exceed  by  1125,000  those  of  the  preceding 
year,  and  $200,000  were  allowed  for  stamp-duties.  Nor 
did  he  doubt  that  the  Bank  of  the  United  States  would 
consent  to  continue  their  loans,  and  that  funds  could  be 
obtained  in  anticipation  of  any  solid  revenues  that  might 
be  established.  He  was  emphatic,  however,  in  declaring, 
that,  to  obtain  money  on  reasonable  terms,  means  must 
be  provided  for  its  reimbursement.^ 

The  committee  thought  there  would  be  a  surplus 
revenue  of  $1,085,437.45,  which,  if  not  otherwise  appro- 
priated, would  be  applied  in   reducing   the   public   debt. 

1  Gibbs's  Adm.,  vol.  ii.  pp.  64,  65.  Wolcott  wrote  to  the  Committee  of 
Ways  ai}(l  Means,  "It  is  not  easy  to  form  a  certain  opinion  of  the  sum 
wfecti'^fi'H  be  immediately  obtained  on  permanent  loans,  nor  of  the  ex- 
pense -W^hich  will  attend  them.  The  United  States  are  unquestionably 
entitled  to  credit  on  the  most  advantageous  terms:  the  instalments  in  Hol- 
land, which  became  due  prior  to  the  present  year,  have  been  discharged; 
effectual  remittances  for  the  sums  which  will  be  payable  before  December 
next  have  been  assured ;  the  sums  of  stock  which  are  offered  for  sale  are 
not  considerable;  there  is  no  ground  for  distrusting  the  public  ability  or 
good  faith ;  the  present  prices  of  stock  are  not  considered  as  indications  of 
distrust,  but  of  the  high  value  of  money  at  the  present  time.  Assurances 
have  been  received,  from  wealthy  and  influential  men,  that  they  will  assist 
the  United  States  with  loans  on  reasonable  terms.  On  these  grounds,  I 
conceive  myself  justifiable  in  expressing  an  opinion  that  the  public  credit 
will  afford  resources  adequate  to  any  exigency  which  can  be  reasonably 
contemplated."  But  to  insure  the  success  of  such  loans,  and  especially  to 
guard  against  a  too  common  abuse  of  the  system,  Wolcott  declared  that  it 
was  of  the  utmost  importance  to  establish  competent  funds  for  the  reim- 
bursement, in  a  reasonable  time,  of  any  sum  that  might  be  borrowed. 
The  provision  of  a  sinking-fund,  such  as  the  committee  had  suggested  in 
their  letter  to  him,  he  considered  an  indispensable  requisite. 


1798.]  APPEOPRIATIONS   AND   EXPENDITURES.  197 

The  sum  they  proposed  to  divert  toward  defraying  the 
extraordinary  war  expenditures,  which  were  estimated  at 
f  2,482,143.1  To  meet  the  deficiency,  and  to  pay  two  in- 
stalments of  the  debt  due  to  the  United-States  bank  for 
stock,  and  the  interest  and  extinguishing  annuity  of  that 
portion  of  the  public  stock  which  became  payable  after 
1801,  a  direct  tax  of  ^2,000,000  was  laid.  In  anticipation 
of  the  amount  that  would  be  raised  in  this  way,  the  Presi- 
dent was  authorized  to  borrow  $2,000,000,  beside  $5,000,- 
000  more,  on  the  best  terms  possible.  The  stock  was  to 
be  reimbursed  in  fifteen  years.  The  surplus  of  the  im- 
port and  tonnage  duties  was  pledged  for  the  payment  of 
the  interest  and  principal,  as  well  as  new  revenues,  if 
these  were  not  sufficient. 

Another  Act  was  passed,  June  30, 1798,  for  an  additional 
armament  to  protect  trade  ;  and  the  President  was  empow- 
ered to  purchase  a  number  of  vessels,  or  contract  for  build- 
ing them.  Six-per-cent  stock  was  to  be  issued  to  pay  for 
them,  payable  at  the  pleasure  of  the  government.  Several 
vessels  were  obtained  by  this  legislation,  and  the  next  year 
certificates  to  the  amount  of  $711,700  were  issued.  This 
stock  was  subsequently  known  as  the  navy  six-per-cents. 

With  increasing  expenditures,  and  congressional  neg- 
lect to  provide  for  paying  them,  the  credit  of  the  govern- 
ment weakened.  There  was,  too,  a  sharper  demand  for 
money .2  But  the  government  must  borrow,  whatever  the 
price  might  be.  As  Wolcott  could  not  get  it  for  less 
than  eight  per  cent,  he  issued  a  stock  bearing  that  rate  of 

1  Harper's  Report  on  Additional  Revenues,  May  1,  1798,  1  Finance, 
p.  579. 

2  Gibbs's  A  dm.,  vol.  ii.  p.  164. 


198      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1799. 

interest,  payable  quarterly.  The  stock  was  irredeemable 
for  five  years,  but,  after  that  time,  whenever  the  govern- 
ment desired.  Wolcott  regarded  as  a  maxim  of  finance, 
that  it  was  better  to  borrow  the  sum  required  at  par,  for 
a  liisfher  rate  of  interest,  than  for  a  lower  one  with  a 
deduction  from  the  principal. 

In  January,  1799,  the  loan  was  filled ;  ^  but  the  rate 
paid  caused  a  loud  outcry  by  the  Republican  party.  It 
formed  the  groundwork  of  much  criticism,  and  was  one 
of  the  causes  which  contributed  to  the  downfall  of  the 
Federalists.  Yet  it  is  very  doubtful  if  money  could 
have  been  borrowed  at  a  much  lower  rate.  Wolcott 
wrote  in  December,  1798,  to  Hamilton,  "  The  result  of 
all  the  inquiries  which  I  have  been  able  to  make,  is,  that 
a  small  sum  might  be  raised  by  the  gradual  sale  of  seven 
and  a  half  per  cent  stock  at  par,  but  that  there  can  be 
no  certainty  that  a  loan  would  immediately  be  filled  for 

1  Stephen  Higginson,  a  prominent  banker  of  Boston,  wrote  to  Wol- 
cott (Feb.  14, 1799),  "Your  proposals  for  a  loan  have  been  as  well  received 
here  as  I  expected.  A  much  larger  sum  than  five  millions  might  have 
been  obtained,  had  it  been  wanted,  and  the  existing  laws  authorized  its 
being  extended.  At  least  such  is  the  present  appearance,  judging  from 
the  eagerness  of  people  here  to  subscribe,  and  what  we  are  informed  as  to 
the  disjwsition  of  people  in  New  York  and  Philadelphia,  etc.  I  am,  how- 
ever, at  a  loss  to  account  for  the  ardor  discovered  in  people  to  become 
subscribers;  for  the  new  loan  will  not  prove  more  beneficial  than  the  six 
per  cents  at  the  highest  price  asked  for  them.  .  .  .  Patriotism,  or  a  desire 
to  aid  government  by  showing  both  an  ability  and  disposition  to  furnish 
the  funds  wanted  for  public  purposes,  has  an  influence  with  many;  but  I 
suspect  that  the  brokers  and  speculators  in  stocks  have  contributed  much 
to  excite  that  disposition,  expecting  to  make  a  profit  on  the  shares  they 
may  take  in  the  loan  by  selling  out  early  to  those  who  may  not  succeed  in 
getting  so  much  invested  in  it  as  they  now  wish  for."  —  Gibbs's  Adm.,  vol. 
ii.  p.  179. 


1800.]  APPROPRIATIONS   AND    EXPENDITURES.  199 

the  sum  we  want  under  eight  per  cent."  ^  Within  five 
years  the  same  rate  was  again  paid  for  money,  including 
the  exchange  too,  when  payable  abroad.^ 

The  loan,  therefore,  was  secured,  and  formed  a  part 
of  the  permanent  debt.  The  navy  six-per-cent  loan  also 
appeared  in  the  same  list  after  the  year  1800. 

Whether  the  policy  of  the  Federal  party  in  making 
expenditures  for  creating  an  army  and  navy  to  resist 
foreign  aggression  was  the  true  one,  as  opposed  to  that 
of  the  Republicans,  who  put  the  payment  of  the  public 
debt  before  it,  is  a  question  concerning  which  much  may 
be  said  on  both  sides.  It  was  the  first  sharp  point  of 
divergence  between  the  two  parties. 

The  next  year  the  public  expenditures  were  estimated 
at  $15,393,024.11 ;  while  the  estimate  of  revenues,  includ- 
ing money  in  the  treasury,  was  placed  no  higher  than 
$10,301,258.51.  The  estimated  deficiency,  therefore,  was 
$5,091,765.60.  Though  the  internal  revenues  had  in- 
creased, the  duties  on  imports  and  tonnage  had  dimin- 
ished, while  a  larger  expenditure  was  required  to  prepare 
the  country  for  war.  It  was  proposed  to  meet  the  defi- 
ciency by  reducing  the  expenses  in  the  navy  and  army 
departments  $1,600,000,  and  by  a  new  loan  of  $3,500,000. 
It  was  not  necessary  to  borrow  the  whole  amount,  for  the 
war-cloud  rolled  away.  The  same  rate  of  interest  was 
offered,  but  a  premium  was  asked.  The  highest  rate  of 
interest  asked  by  lenders  was  eight  per  cent,  and  no  sales 
were  made  below  five  per  cent.^  Such  were  the  extraor- 
dinary expenditures  occasioned  by  the  conduct  of  France. 

1  Dec.  21, 1798,  Gi1>bs's  Adm.,  vol.  ii.  p.  178.         2  ibid.,  pp.  242-244. 
3  See  Reports,  1  Fiuauce,  pp.  626,  643,  692, 


200      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1800. 

Happily,  peace  was  now  so  fully  assured,  that  no  unusual 
military  expenditures  were  incurred  for  more  than  ten 
years. 

Wolcott  resolved  to  resign  before  the  close  of  the  year ; 
and,  when  he  announced  his  resignation  to  the  House,  he 
requested  an  investigation  of  the  affairs  of  his  depart- 
ment. He  had  held  the  office  of  secretary  of  the  treas- 
ury during  a  considerable  portion  of  Washington's  second 
term,  and  nearly  the  whole  of  Adams's ;  and  he  longed  to 
retire,  especially  since  his  relations  with  the  President 
were  no  longer  very  agreeable.  Wolcott  had  retained  his 
portfolio  longer  than  any  other  member  of  the  President's 
cabinet ;  but  he,  too,  now  wished  to  be  relieved.  To 
his  letter  announcing  his  intention  of  resigning,  Adams 
made  a  courteous  and  dignified  reply ;  and  after  Wolcott 
retired,  at  the  close  of  the  year.  Dexter,  the  secretary  of 
war,  administered  the  office  during  the  sixty  days  remain- 
ing of  the  President's  term. 

A  committee,  as  Wolcott  had  requested,  faithfully 
investigated  the  affairs  of  his  department.  The  history 
of  Wolcott's  negotiation  of  loans  was  traced,  beside  every 
other  phase  of  his  official  life.  The  report  was  unani- 
mous, and  bore  an  honorable  and  gratifying  testimony  to 
tlie  merits  of  Wolcott's  public  labors.  The  committee, 
in  closing,  expressed  their  opinion  that  the  business  of  the 
treasury  department  had  been  conducted  with  regularity, 
fidelity,  and  economy ;  that  the  disbursements  of  money 
liud  always  been  legally  made  ;  that  every  attention  con- 
silent  with  the  nature  of  the  business  had  been  bestowed 
in  removing  delinquents  from  office,  in  compelling  them 
to  account,  in  securing  moneys  due  from  them,  and  in 


1800.]  APPKOPRIATIONS   AND   EXPENDITUKES.  201 

preventing  an  improper  and  unreasonable  accumulation 
in  the  hands  of  public  agents ;  that  the  loans  had  been 
procured  upon  the  most  advantageous  terms,  and  the 
most  eligible  modes  of  remittance  to  Europe  had  been 
devised ;  and,  generally,  that  the  financial  concerns  of  the 
country  had  been  left  by  him  in  good  order  and  prosperity .^ 

The  loss  arising  from  the  delinquency  of  those  con- 
cerned in  the  collection  of  the  revenue  from  duties  on 
imports  and  tonnage  for  the  six  years  of  Wolcott's  admin- 
istration did  not  exceed  a  hundred  thousand  dollars,  — less 
than  one-seventh  of  one  per  cent  of  the  whole  amount 
collected.  In  the  collection  of  the  internal  revenue  the 
loss  was  somewhat  greater,  which  was  attributed  jiartly 
to  the  novelty  of  the  system.  This  loss  was  estimated  at 
fifteen  thousand  dollars. 

On  the  8th  of  November  a  fire  occurred  in  the  war 
department,  and  two  months  afterward  another  broke 
out  in  the  department  of  the  treasury.  Furious  attacks 
were  made  on  the  Federal  ofiicers ;  nor  was  Wolcott 
spared.  There  was  an  investigation ;  but  no  evidence 
whatever  was  adduced  that  Wolcott,  or  any  other  official, 
had  been  guilty  of  negligence  or  misconduct  in  regard  to 
these  occurrences.  All  the  most  valuable  accounts  and 
papers  in  the  treasury  office  were  saved,  and  the  govern- 
ment sustained  no  severe  loss  from  these  events. 

The  work  of  contriving  the  financial  machinery  of  the 
government,  and  of  starting  it,  had  been  finished.  The 
public  debt  had  been  funded,  and  efficient  steps  taken  for 
paying  it  at  maturity.  The  national  bank  was  in  suc- 
cessful operation.     Internal  taxes  were  laid.     The  system 

1  Otis's  Report,  Jan.  28,  1801,  1  Finance,  p.  G'JO. 


202      FINANCTAL  HISTORY  OF  THE  UNITED  STATES.       [1800. 

of  direct  taxation  was  begun  under  Wolcott,  who  did 
much  toward  creating  and  executing  it.  He  was  success- 
ful in  providing  for  all  the  public  expenditures,  including 
the  borrowing  of  money  needed  to  prepare  the  country 
for  war.  He  administered  the  affairs  of  the  treasury 
department  at  a  trying  time.  The  opposition  were  will- 
ing to  incur  debts,  but  were  very  slow  in  raising  money 
to  pay  them.  Under  such  circumstances,  the  administra- 
tion of  the  finances  was  neither  an  easy  nor  a  cheerful 
task.  What  man  could  have  acquitted  himself  better 
than  Wolcott  ? 


1800.]  APPROPRIATIONS    AND    EXPENDITURES.  203 


CHAPTER   XII. 

APPROPRIATIONS   AND  EXPENDITURES. 
1800-1812. 

With  the  incoming  of  the  century  there  was  a  new- 
President,  Jefferson,  who  appointed  Albert  Gallatin  sec- 
retary of  the  treasury.  Born  in  Switzerland,  he  emi- 
grated to  this  country  when  he  was  nineteen  years  old. 
He  had  served  in  the  State  Legislature  of  Pennsylvania, 
and  was  elected  to  the  United-States  Senate,  but  was 
refused  admission  because  he  had  not  lived  in  the  United 
States  long  enough  to  become  a  resident  of  the  country. 
Afterward  he  was  elected  to  the  House ;  and  tliere  he 
displayed  'that  aptness  for  finance  which  for  many  years 
rendered  him  one  of  the  foremost  figures  in  American 
politics.  He  had  been  altogether  the  ablest  critic  of  the 
financial  plans  of  his  opponents.  In  political  manage- 
ment no  one  has  ever  been  more  adroit  than  Jefferson, 
but  he  knew  hardly  any  thing  about  finance.  Gallatin, 
therefore,  was  an  indispensable  member  of  the  presiden- 
tial cabinet :  and  this  is  the  reason  why  he  retained  office 
so  long  after  he  became  unpopular  with  his  own  party ; 
there  was  no  one  to  put  in  his  place. 

Gallatin  possessed  a  very  clear  and  vigorous  mind ;  and, 
while  his  system  of  finance  is  not  marked  by  any  striking 
ideas  and  suggestions,  he  was  always  painstaking,  honest, 


204      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1800. 

and  ever  zealous  in  promoting  the  strictest  economy  in 
all  the  concerns  of  the  government.  Though  evincing 
something  of  a  partisan  spirit  on  a  few  occasions,  the 
persons  who  have  served  the  country  so  disinterestedly 
and  efficiently  are  very  rare.^ 

The  debt  having  been  funded,  and  the  machinery  set 
a-going  for  raising  the  means  to  pay  it  and  the  other 
expenditures  of  the  government,  Gallatin  was  confronted 
with  no  gigantic  problems  like  those  which  blocked  the 
path  of  Hamilton  when  he  entered  the  treasury  depart- 
ment. Friendly  relations  existed  with  all  nations;  the 
army  and  navy  were  reduced  to  the  lowest  point;  the 
civil  service  was  not  burdened  with  useless  officials ; 
the  debt  had  somewhat  increased  in  consequence  of 
preparations  for  war  with  England  and  France,  but  not 
in  proportion  to  the  increase  of  population  and  wealth. 
"  Through  all  their  troubles,"  says  Gallatin's  biographer, 
"  the  Federalists  had  so  carefully  managed  taxation,  that 

1  Said  John  Quincy  Adams  at  a  dinner  given  in  honor  of  Albert  Gal- 
latin in  New  York  in  1844,  "  I  have  lived  long,  sir,  in  this  world,  and  I 
have  been  connected  with  all  sorts  of  men,  of  all  sects  and  descriptions. 
I  have  been  in  the  public  service  for  a  great  part  of  my  life,  and  filled 
various  oflfices  of  trust  in  conjunction  with  that  venerable  gentleman,  Al- 
bert Gallatin.  I  have  known  him  half  a  century.  In  many  things  we 
differed  ;  on  many  questions  of  public  interest  and  policy  we  were  divided; 
and,  in  the  history  of  parties  in  this  country,  there  is  no  man  from  whom  I 
have  so  widely  differed  as  from  him.  But  on  other  things  we  have  har- 
monized ;  and  now  there  is  no  man  with  whom  I  more  thoroughly  agree 
on  all  points  than  I  do  with  him.  But  one  word  more.  Let  me  say,  before 
I  leave  you  and  him,  —  birds  of  passage  as  we  are,  bound  to  a  warmer  and 
more  congenial  clime,  —  that  among  all  the  public  men  with  whom  I  have 
been  associated  in  the  course  of  my  political  life,  whether  agreeing  or 
differing  in  opinion  with  him,  I  have  always  found  him  t(i  be  an  honest 
and  honorable  man."  —  Adams's  Life  of  Gallatin,  p.  G76. 


1800.]  APPROPKIATIONS    AND    EXPENDITURES.  205 

there  was  absolutely  nothing  for  Gallatin  to  do ;  and  he 
attempted  nothing  in  regard  to  the  tariff  of  impost  duties, 
which  were  uniformly  moderate  and  unexceptionable, 
while,  even  in  regard  to  the  excise  and  other  internal 
taxes,  he  hesitated  to  interfere."  ^ 

"  What  Hamilton  was  to  Washington,  Gallatin  was 
to  Jefferson,"  says  one  who  has  studied  his  life  and  times 
with  great  care,  "with  only  such  difference  as  circum- 
stances required."  Madison,  it  is  true,  exerted  a  potent 
influence  over  Jefferson  :  in  truth,  the  government  was  a 
triumvirate  almost  as  clearly  defined  as  any  triumvirate  of 
Rome.  During  eight  years  the  country  was  governed  by 
three  men,  —  Jefferson,  Madison,  Gallatin,  —  among  whom 
the  latter  "not  only  represented  the  whole  political  influ- 
ence of  the  great  Middle  States,  not  only  held  effectively 
wielded  the  power  of  the  purse,  but  also  was  avowedly 
charged  with  the  task  of  carrying  into  effect  the  main  prin- 
ciples on  which  the  party  had  sought  and  attained  power." 

During  the  summer  and  autumn  of  the  first  year  Gal- 
latin perfectly  mastered  all  the  details  of  his  office,  and 
determined  within  what  limits  the  expenditures  of  the 
several  departments  should  be  confined.  The  cabinet 
were  in  accord  with  respect  to  paying  the  debt,  and  that 
this  should  be  done  in  preference  to  reducing  taxes; 
but  they  were  also  desirous  of  reducing  these.  The 
only  way,  therefore,  to  effect  both  objects,  was  to  lessen 
expenditures.  This  could  be  more  easily  done,  so  Galla- 
tin thought,  in  the  navy  than  anywhere  else ;  but  the 
secretary  of  the  navy  was  disinclined  to  introduce  any 
new  economy  in  his  department. 

1  Adams's  Life  of  Gallatin,  p.  274. 


206      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1800. 


In  response  to  the  request  of  the  President  for  the 
views  of  the  secretary  of  the  treasury  concerning  the  reve- 
nue and  expenditures  of  the  government,  in  the  autumn 
of  that  year  he  sent  the  following  sketch :  — 


Imports      .     . 
Lands,  postage 


),500,000 
300,000 


Total $9,800,000 


EXPENDITURB 


Interest     .... 
Civil  expenditures  . 
Military  expenditures 
Naval  expenditures 


Total 19,800,000 


$7,200,000 

1,000,000 

930,000 

670,000 


By  applying  the  sum  of  $7,200,000  to  the  payment  of 
the  interest  and  principal,  he  expected  to  pay  in  eight 
years  $38,000,000  of  the  debt.  Fixing  this  as  the  amount 
which  ought  to  be  paid,  and  estimating  the  revenues  at 
$9,800,000,  he  proposed  that  the  departments  should  live 
from  the  balance,  $2,600,000.  If  this  could  be  done,  he 
was  willing  to  part  with  the  internal  revenues,  which 
yielded  $650,000,  but  not  otherwise.  "  This,"  as  Adams 
says,  "seems  to  have  been  beyond  his  power.  Few 
finance  ministers  have  ever  pressed  their  economies  with 
more  perseverance  or  authority  than  Mr.  Gallatin,  but  he 
never  succeeded  in  carrying  on  the  government  with  so 
much  frugality  as  this ;  and  the  sketch  seems  to  indicate 
what  the  administration  would  have  liked  to  do,  rather 
than  what  it  did."  For,  in  his  report  made  a  month 
later,  he  was  obliged  to  modify  his  plan  thus :  — 

REVENUE. 

Imports $9,500,000 

Lands,  postage    .     .     .       450,000 
Internal  revenues     .     .        650,000 


Total . 


$10,600,000 


EXPENDITURE 

Interest,  etc.  .     .     . 

$7,100,000 

Civil  expenditures  . 

980,000 

Military  expenditures 

1,420,000 

Naval  expenditures 

1,100,000 

Total.     .     .     . 

$10,600,000 

1802.]  APPROPR'ATroNS    AND    EXPENDITTJKES.  207 

Yet  the  internal  taxes  were  abolished  very  early  during 
Jefferson's  administration,  while  Congress  also  adopted 
Gallatin's  plan  for  the  discharge  of  the  public  debt.  How, 
then,  were  these  ends  effected  ?  Under  the  pressure  of 
party  necessity,  both  the  secretary  of  war  and  of  the 
navy  lowered  their  estimates  to  a  point  at  which  Gallatin 
consented  to  let  the  internal  taxes  go.  He  never  officially 
recommended  their  repeal ;  but  the  Committee  of  Ways  and 
Means  did,  having  been  assured  by  the  secretary  of  war 
and  of  the  navy  that  a  reduction  of  six  hundred  thousand 
dollars  would  be  made  in  the  expenditure  of  their  depart- 
ments. The  retrenchment,  though  promised,  was  never 
effected.  Gallatin,  however,  had  the  good  fortune  to 
collect  enough  more  revenue  than  he  expected  to  supply 
the  difference.  Had  not  this  event  happened,  there  would 
have  been  a  balance  that  year  against  the  government. 
Gallatin  was  not  to  be  thus  favored  very  long.  A  war 
broke  out  with  Tripoli,  and  further  retrenchment  in  the 
navy  department  was  impossible. 

It  soon  became  evident,  that,  even  with  larger  duties 
from  imports,  the  expenses  of  the  war  could  not  be  met 
without  recovering  the  income  sacrificed  by  the  repeal  of 
the  internal  taxes  in  1802.  Accordingly,  an  addition 
of  two  and  a  half  per  cent  was  imposed  on  all  imported 
articles  paying  an  ad  valorem  duty.  What  had  been 
done,  therefore,  was  simply  a  shifting  of  the  mode  of  col- 
lection ;  or,  in  other  words,  instead  of  raising  a  million 
dollars  from  whiskey,  stamps,  etc.,  this  sum  was  raised 
on  articles  of  foreign  produce  or  manufacture.  The  extra 
tax  was  called  the  "  Mediterranean  Fund,"  and  was  sup- 
posed to  be  a  temporary  resource  for  the  Tripolitan  war. 


238       Fl^'AXCIAL  laSTOnV  of  the  united  states.       [1805. 

Although  Jefferson  was  never  slow  in  words,  in  advocat- 
ing economy,  his  course  was  singularly  inconsistent  with 
his  professions.  In  his  message  the  next  year  was  a  recom- 
mendation for  dry  docks  at  Washington.  He  had  shown 
his  message,  before  delivering  it,  to  Gallatin  for  criticism, 
who  remarked  concerning  that  feature  of  it,  "  I  am  in  toto 
against  this  recommendation,  1st,  because  so  long  as  the 
Mediterranean  war  lasts  we  will  not  have  any  money  to 
spare  for  the  navy;  and,  2d,  because  if  dry  docks  are 
necessary,  so  long  as  we  have  six  navy-yards,  it  seems  to 
me  that  a  general  recommendation  would  be  sufficient, 
leaving  the  Legislature  free  either  to  designate  the  place, 
or  to  trust  the  Executive  with  the  selection."  Sound 
advice,  surely,  but  not  heeded,  in  spite  of  the  prediction 
of  Gallatin,  who  told  the  President  that  his  recommen- 
dation would  not  command  thirty  votes  in  Congress,  the 
truth  of  which  prophecy  Jefferson  in  due  time  learned.^ 

During  the  first  five  years  of  Gallatin's  administration 
of  the  finances,  he  was  strongly  opposed  to  the  creation 
of  a  navy.  His  thoughts  centred  deepest  in  paying  the 
national  debt ;  but  it  was  redeemed  so  rapidly,  that,  in 
1805,  he  wrote  to  Jefferson  that  after  the  year  1809  there 
would  be  $3,500,000  of  the  annual  sinking-fund  available 
for  other  purposes.  In  the  mean  time  there  would  proba- 
bly be  a  surplus  of  12,000,000,  a  large  portion  of  which 
he  thought  might  be  wisely  employed  in  building  a  navy. 
As  he  had  a  clear  idea  of  the  incapacity  of  the  secretary 
of  the  navy,  Robert  Smith,  to  expend  the  money  economi- 
cally, he  urged  putting  it  into  the  hands  of  commissioners. 
No  money,  however,  was  then  appropriated  for  that  pur- 

1  Adams's  Life  of  Gallatin,  p.  306. 


1806.]  APPROPRIATIONS   AND   EXPENDITURES.  209 

pose  ;  though,  had  the  secretary  of  the  navy  been  an 
abler  and  better  man,  very  likely  the  ideas  of  Gallatin 
would  have  hardened  into  legislation. 

Thus  far  Gallatin's  administration  had  been  success- 
ful. His  report  at  the  close  of  1805  showed  that  the  rev- 
enue had  risen  to  $12,672,000;  which,  with  the  income 
of  the  Mediterranean  Fund  and  of  the  land-sales,  carried 
the  receipts  of  the  government  nearly  to  $14,000,000.  The 
surplus  in  the  treasury,  after  meeting  all  the  regular  ex- 
penditures, navy  deficiencies,  and  French  claims,  would 
still  probably  exceed  $1,000,000.  The  debt  was  reduced 
so  far,  that,  in  four  years  longer,  the  entire  sum  redeem- 
able solely  by  the  determination  of  the  government  would 
be  discharged.  The  rest  could  be  redeemed  only  by  pur- 
chase, or  by  waiting  until  the  law  permitted  its  redemp- 
tion. "  Should  circumstances  render  it  eligible,"  says 
Gallatin,  "a  considerable  portion  of  the  revenue  now 
appropriated  for  the  payment  of  the  debt  may  then,  in 
conformity  with  existing  provisions,  be  applied  to  other 

objects."  ^ 

The  following  year  was  a  still  more  prosperous  one. 
The  regular  revenue  exceeded  $13,000,000 ;  other  receipts 
swelled  the  amount  $1,500,000  more;  $2,000,000,  which 
had  been  appropriated  for  the  purchase  of  Florida,  had 
been  supplied  from  the  surplus,  and  sent  abroad  ;  the 
Tripolitan  war  was  over;  a  surplus  of  $4,000,000  was 
left  in  the  treasury ;  and  only  three  years  remained,  when 
some  disposition  must  be  made  of  the  excess  of  revenue. 
With  such  a  rich  prospect  lying  before  him,  the  pleasing 
inquiry  arose,   Should  the   taxes  be   reduced,  or  should 

1  Adams's  Life  of  Gallatin,  p.  348. 


210      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1806. 

the  revenues  be  applied  in  new  ways,  and,  if  so,  in 
what  ones?  Jefferson  and  Gallatin  both  believed,  that, 
while  it  might  be  desirable  to  lessen  the  taxes  in  some 
directions,  the  nation  would  gain  far  more  by  continuing 
the  system  without  any  large  reduction,  and  applying  the 
surplus  not  needed  for  the  regular  expenditures  and  the 
payment  of  the  public  debt,  in  making  internal  improve- 
ments, and  in  founding  a  national  university.  The  report 
of  the  commissioners  who  had  been  appointed  to  lay  out 
the  Cumberland  road,  extending  from  the  Potomac  to  the 
Ohio,  was  laid  before  Congress  in  1807.  A  month  later 
the  coast-survey  was  organized.  Shortly  afterward  the 
secretary  of  the  treasury  was  directed  to  prepare  and 
report  to  the  Senate  a  general  scheme  of  internal  im- 
provement. 

Gallatin  had  as  strong  a  passion  for  organization  as 
Hamilton.  He  was,  indeed,  a  financial  genius  of  the 
highest  order ;  and,  though  very  exact  in  every  detail,  he 
also  took  a  lofty  and  wide  range  of  things.  His  report 
shows  how  thoroughly  he  had  mastered  a  great  theme. 

The  expense  of  his  scheme  of  internal  improvements 
he  estimated  at  $20,000,000.  He  proposed  to  appropriate 
$2,000,000  a  year  until  they  were  finished.  The  report 
embraced  a  series  of  roads  and  canals  connecting  various 
parts  of  the  country ;  and,  by  selling  the  stock  created  for 
building  them,  Gallatin  counted  on  the  fund  becoming  a 
permanent  resource  for  further  improvements.  He  was 
prevented  from  realizing  more  than  two  features  of  his 
plan.  One  was  the  establishment  of  the  land-system ; 
and  the  other,  the  Cumberland  road.  As  early  as  1796 
he  had  framed  an  Act  for  establishing  a  land-system.     It 


1807.]  APPEOPRIATIONS    AND   EXPENDITURES.  211 

applied,  hoAvever,  onlj-  to  the  lands  lying  north-west  of 
the  Ohio  River,  in  which  the  Indian  titles  had  been  ex- 
tinguished ;  and  it  provided  for  laying  these  out  in  town- 
ships six  miles  square,  and  for  selling  the  land  in  sections, 
under  certain  reservations.  When  he  became  secretary 
of  the  treasury  the  system  was  fully  developed,  for  he 
always  retained  his  interest  in  this  peculiar  proi^erty  of 
the  government. 

At  this  time  Jefferson  launched  his  famous  gfunboat 
scheme.  He  sent  a  special  message  to  Congress  respect- 
ing it  in  the  winter  of  1806-7,  recommending  the  govern- 
ment to  build  two  hundred  of  them.  Robert  Smith,  the 
secretary  of  the  navy,  was  as  hearty  a  supporter  of  this 
foolish  scheme  as  Jefferson  himself.  Gallatin  thought  dif- 
ferently. He  was  "  clearly  of  opinion  "  that  the  seventy- 
three  in  course  of  construction  were  more  than  enough. 
"  Of  all  the  species  of  force  which  war  may  require,  — 
armies,  ships-of-war,  fortifications,  and  gunboats,  —  there 
is  none  which  can  be  obtained  in  a  shorter  notice  than 
gunboats,  and  none,  therefore,  that  it  is  less  necessar}*  to 
provide  beforehand."  No  argument  that  Gallatin  could 
urge  moved  Jefferson.  Two  years  later  Paul  Hamilton, 
who  was  then  secretary  of  the  navy,  reported  that  a 
hundred  and  seventy-six  had  been  built,  though  only 
twenty-four  were  in  actual  service.  The  aggregate  ex- 
pense to  that  date  had  been  $1,700,000,  or  about  $725,000 
a  year.  In  1807  the  entire  naval  expenditure  was  $1,722.- 
000,  which  increased  the  next  year  to  $1,900,000.  How 
different  were  these  figures  from  the  $650,000,  fixed  at 
the  beginning  of  Jefferson's  administration  as  the  total 
annual   expense   for  maintaining   the   navy  department ! 


212      FINANCIAL  HISTORY  OF  THE  UNITED  STATES..      [1807. 

"  Had  all  this  expenditure  improved  the  national  de- 
fences, the  waste  of  money  would  have  seemed  less  out- 
rageous, even  to  Mr.  Gallatin,  who  was  its  chief  victim ; 
but,  as  most  naval  officers  expected,  the  gunboats  were 
in  some  respects  positively  mischievous,  in  others  of  very 
little  use,  and  they  were  easily  destroyed  by  the  enemy 
whenever  found.  At  the  end  of  the  war  of  1812,  such  of 
them  as  as  were  not  already  captured,  burned,  wrecked, 
or  decayed,  were  quietly  broken  up  or  sold." 

The  commercial  growth  of  America  had  been  so  great 
that  England  resolved  to  crush  it.  Canning  was  prime 
minister.  The  administration  woke  up  to  the  realization 
of  England's  new  policy  when  the  news  came  that  the 
"  Chesapeake  "  had  been  captured  by  the  British  ship-of- 
war  "  Leopard."  The  first  measure  of  defence  was  an 
embargo.  Adams  truly  says  that  Jefferson,  and  most  of 
the  leaders  of  his  party,  had  a  strong  faith  in  the  efficacy 
of  commercial  regulations.  They  believed,  that,  as  the 
commerce  of  America  was  valuable  to  England  and  France, 
therefore  these  countries  might  be  forced  to  do  our  will  by 
depriving  them  of  our  commerce.  They  were  right  in  the 
end ;  but  unhappily  England  did  not  find  out  where  her 
true  interest  lay,  until  after  a  five-years'  experiment  and 
a  costly  war.  But  Gallatin  had  no  faith  in  the  efficacy 
of  an  embargo  to  restrain  belligerent  powers,  and  in 
due  time  his  prophecy  proved  true. 

If  war  must  come,  loans  would  be  necessary ;  and  the 
embargo  would  produce  a  situation  most  favorable  for 
making  them.  All  that  the  treasury  required,  so  Gallatin 
thought,  beside  economy,  was  to  double  the  import  du- 
ties, to  limit  the  system  of  granting  drawbacks  on  impor- 


1809.]  APPROPRIATIONS   AND    EXPENDITURES.  213 

tatious  iifterward  exported,  either  to  repeal  or  to  complete 
tlie  non-intercourse  law,  and  to  reform  the  system  of  ac- 
countability in  the  army  and  navy  departments. 

The  navy  had  not  been  economically  managed  since 
Jefferson  assumed  office.  The  same  person  administered 
its  affairs  (Robert  Smith),  who  had  spent  a  great  deal  of 
money,  but  had  only  a  very  little  to  show  for  his  expendi- 
tures. Finally,  it  now  appeared  that  he  had  bought  bills 
of  exchange  to  the  amount  of  $250,000,  within  two  years, 
of  his  brother,  Gen.  Smith,  who  was  then  a  member  of 
the  Senate  from  Maryland ;  and  from  his  connections, 
and  on  the  face  of  the  accounts,  it  appeared  that  these 
were,  to  some  extent,  accommodation  bills  :  in  other  words, 
that  the  government  money  had  been  left  by  collusion 
in  the  possession  of  Gen.  Smith's  finn  until  they  could 
conveniently  remit  it  to  its  destination.  When  this  pro- 
ceeding became  known,  one  effect  was  to  estrange  very 
completely  a  group  in  the  Senate  who  belonged  to  Galla- 
tin's party,  and  whose  influence  was  indispensable  to  his 
maintaining  control  over  that  body. 

His  report  for  1809  announced  a  deficit.  This  was  a 
part  of  the  price  of  the  embargo.  For  the  next  year  he 
declared  that  a  loan  of  $4,000,000  would  be  required,  if 
tlie  military  and  naval  expenditures  should  be  as  large  as 
those  of  the  previous  year.  If  Congress  should  resolve 
on  a  permanent  increase  in  the  military  and  naval  estab- 
lishments, additional  duties  would  be  required ;  if  not, 
a  continuation  of  the  Mediterranean  Fund  would  be 
sufficient. 

The  country  was  swiftly  nearing  the  point  of  war ;  yet 
the  cost  of  waging  it  was   a   highly  important   matter. 


214      nXANCIAL  HISTORY  OF  THE  TJNITED  STATES.       [1811. 

which  Congress,  nevertheless,  shrank  from  considering. 
Under  the  operation  of  the  embargo,  the  revenues  were 
rapidly  diminishing,  while  the  expenses  were  far  more 
rapidly  swelling.  Neither  the  President  nor  Gallatin  rec- 
ommended war,  but  they  were  desirous  of  providing  for 
it ;  and  the  secretary  recommended  increased  taxes,  and  a 
loan  of  $1,200,000,  to  pay  troops,  and  to  support  them. 
When  war  was  really  imminent,  the  Committee  of  Ways 
and  Means  requested  Gallatin  to  appear  before  them  to 
discuss  the  question  of  war  taxes.  He  appeared ;  and, 
after  declaring  that  he  did  not  feel  himself  particularly 
responsible  for  the  position  occupied  by  the  nation,  he 
added,  that  it  could  not  recede  therefrom  with  honor 
and  safety,  and  that  it  must  maintain  that  position  with 
all  the  available  means  which  could  be  brought  to  bear 
on  the  enemy,  and  that  a  system  of  increased  taxation, 
which  he  fully  set  forth,  ought  to  be  immediately  put  into 
operation. 

These  declarations  fell  like  an  unexpected  thunderbolt 
on  Congress.  The  clouds  had,  indeed,  long  been  gather- 
ing ;  but  Congress  would  not  look  up  and  see  them.  Now, 
when  the  very  bolt  of  Jove  had  descended,  Congress  could 
no  longer  ignore  the  perils  of  the  situation.  They  had 
been  willing  to  authorize  loans ;  but  they  had  resolutely 
turned  their  faces  away  from  Gallatin's  recommendations 
to  increase  the  taxes,  notwithstanding  his  repeated  warn- 
ings and  urgent  requests. 

A  letter  afterward  written  to  the  chairman  of  the  Com- 
mittee of  Ways  and  Means  intensified  and  widened  opposi- 
tion to  him,  which  had  been  increasing,  even  in  the  face 
of  approaching  war.     It  was  a  sad  and  humiliating  spec- 


1812.]  APPROPRIATIONS   AND   EXPENDITURES.  215 

tacle  to  behold  Gallatin  strenuously  exerting  all  his  great 
energies  to  prepare  his  country  for  the  coming  struggle, 
and  this  cabal  madly  trying  to  overthrow  him  and  all  his 
works,  no  matter  how  manifest  was  their  wisdom,  or  great 
their  necessity.  Their  conduct  truly  resembled  that  of 
the  Jesuits  after  the  terrific  earthquake  at  Lisbon,  who 
were  not  less  remitting  in  their  intrigues  against  Carvalho, 
notwithstanding  liis  devotion  to  the  work  of  burying 
the  dead,  and  rescuing  the  living.  During  the  earlier 
years  of  Gallatin's  administration  of  the  treasury,  he  had 
exercised  an  extraordinary  power  over  his  party  in  Con- 
gress, and  also  over  Jefferson.  This  was  due  mainly  to 
the  fact  that  he  was  almost  the  only  one  who  knew  any 
thing  about  the  national  finances.  Jefferson  had  at  all 
times  trusted  his  faithful  and  able  secretary.  He  had 
clung  to  him  as  his  sheet-anchor,  although  not  always  in 
favor  of  the  secretary's  economies,  especially  in  the  navy 
department.  Yet  Jefferson  would  often  yield  to  the  supe- 
rior reasoning  of  Gallatin,  as  we  have  shown. 

While  Gallatin  was  far  more  capable  of  administering 
the  duties  of  his  office  than  any  other  member  of  his 
party,  it  was  easy  to  see,  that,  possessing  such  strict  no- 
tions of  economy  and  honesty,  he  would  eventually  create 
a  very  rank  hostility  to  himself.  At  last  it  had  become 
so  great  as  to  paralyze  his  influence.  Yet  when  he  abdi- 
cated, and  went  abroad  to  negotiate  a  treaty,  he  was  never 
more  sorely  needed  in  the  treasury  department.  Still  it 
was  useless  for  him  to  remain.  Hostility  toward  him  had 
become  so  strong,  that  he  could  remain  no  longer  with 
credit  to  himself,  and  profit  to  his  country. 

He  did  not  resign  his  office,  but  went  abroad  retaining 


216      FINANCIAL  HISTOEY  OF  THE  UNITED  STATES.      [1813. 

it,  as  Jay  did  the  chief-justiceship  of  the  United-States 
Supreme  Court  while  negotiating  a  treaty  with  Great 
Britain.  But  Gallatin's  enemies  refused  to  confirm  his 
nomination  for  the  new  post  unless  he  resigned  the  other, 
and  so  at  last  his  resignation  was  sent.  The  faction  op- 
posed to  him  in  his  own  party  had  finally  triumphed. 
They  had  succeeded  in  getting  him  out  of  the  treasury, 
but  their  effort  to  break  him  down  had  proved  very  costly 
to  the  nation.  The  financial  legislation  of  Congress, 
during  the  dreary  and  inglorious  period  of  the  war,  is 
clearly  explicable,  when  viewed  chiefly  as  an  unpatriotic 
effort  to  destroy  the  influence  of  the  most  competent 
financier  then  living.  The  faction  which  accomplished 
this  fell  purpose,  by  no  means  constituted  a  majority  of 
the  controlling  party;  but  they  were  active  and  unscrupu- 
lous. The  President  feared  them  :  consequently  they  pos- 
sessed a  tremendous  power,  which  they  wielded  primarily 
to  destroy  Gallatin,  even  if  in  so  doing  they  imperilled 
the  country  itself. 


BOOK  II. 


FBOM  THE  OPENING   OF  THE  WAK  OF  1812   TO   ITS 
CLOSE    IN    1815. 


CHAPTER  I. 

WAR-LOANS. 

Gallatin  saw  the  deepening  war-cloud  several  years 
before  it  burst.  Like  a  prudent  statesman,  he  informed 
Congress  what  preparation  ought  to  be  made  for  so  un- 
welcome an  event.  The  accumulation  of  a  war-fund,  and 
the  renewal  of  the  bank  charter,  were  suggested :  so  were 
additional  taxes  and  loans.  The  credit  of  the  govern- 
ment at  that  time  was  not  impaired,  either  at  home  or 
abroad;  and  he  believed  "that  loans  to  a  reasonable 
amount  might  be  obtained  on  reasonable  terms."  The 
banks,  too,  would  be  likely  to  loan  "  a  considerable  por- 
tion of  their  capital  stock ; "  for,  if  war  occurred,  Ameri- 
can commerce  would  shrink,  and  no  other  avenue  would 
be  open  for  employing  their  resources.^  Their  capital  was 
supposed  to  be  forty  million  dollars. 

A  year  afterward  Gallatin  reiterated  his  opinion  that 
"loans  should  be  principally  relied  on  in  case  of  war." 
That  opinion,  he  declared,  had  been  corroborated  by 
every  subsequent  view  which  he  had  taken  of  the  sub- 
ject, and  by  the  present  situation  of  the  country.  The 
embargo  had  brought  into  the  United  States,  and  kept 
there,   almost   all   the   floating   property   of   the    nation. 

1  Annual  Report,  Nov.  7, 1807.    Ibid. ^  Nov.  25, 1811. 

219 


220      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1812. 

Whilst  the  depreciated  value  of  domestic  products  in- 
creased the  difficulty  of  raising  a  considerable  revenue 
by  internal  taxes,  at  no  former  time  had  there  been  so 
much  specie  and  unemployed  capital  in  the  country. 
The  high  price  of  public  stocks,  and,  indeed,  of  all  kinds 
of  stocks,  the  reduction  of  the  public  debt,  the  unim- 
paired credit  of  the  government,  and  the  large  amount 
of  existing  bank-stock  in  the  United  States,  left  no  doubt 
of  the  practicability  of  obtaining  the  necessary  loans  on 
reasonable  terms.^ 

The  plan  of  finance  proposed  by  Gallatin  at  the  outset 
of  the  struggle  was  very  simple :  it  was  to  raise  a  reve- 
nue, during  each  year  of  the  war,  equal  to  the  expense  of 
the  peace  establishment,  including  interest  on  the  remain- 
der of  the  old  debt,  and  also  on  future  loans,  and  to 
defray  the  extraordinary  expenses  of  the  war  from  bor- 
rowed money. 

In  January,  1812,  he  wrote  a  letter  to  the  committee  of 
ways  and  means,  at  their  request,  concerning  the  need  of 
increasing  the  revenue.  One  of  the  inquiries  in  their 
communication  to  him  related  to  the  terms  on  which 
loans  amounting  to  at  least  $10,000,000  annually  could 
be  obtained.  To  this  question  he  replied,  that  the  terms 
could  be  ascertained  only  by  experiment.  The  govern- 
ment had  never,  since  its  organization,  obtained  considera- 
ble loans  within  the  United  States  at  the  rate  of  six  per 
cent  a  year,  except  from  the  Bank  of  the  United  States ; 
and  these  had  not  exceeded  $7,000,000.  Of  course,  in 
proportion  to  the  amount  wanted  for  the  service  of  the 
year,  and  to  the  increase  of  stock  of  the  public  debt  in 

1  Annual  Report,  Dec.  16,  1808. 


1812.]  WAR-LOANS.  221 

market,  must  the  terms  become  less  favorable.  Beside 
the  sum  required  to  defray  the  extraordinary  expenses  of 
the  war,  an  annual  loan,  equal  to  the  annual  reimburse- 
ment of  the  six-per-cent  and  deferred  stock  prescribed  by 
law,  would  be  wanted.  The  loan  for  this  sum  would  not 
create  any  addition  to  the  debt,  but  would,  of  course, 
increase  the  sum  needed.  Moreover,  if  the  price  of 
stocks  fell  below  par,  the  commissioners  of  the  sinking- 
fund  were  bound  by  the  existing  laws  to  apply  the  resi- 
due of  the  annual  appropriation  of  $8,000,000  a  year  to 
the  purchase  of  stock.  That  residue  for  the  year  1812 
amounted  to  83,640,000,  which  the  secretary  of  the  treas- 
ury would  also  be  required  to  borrow.^ 

The  first  war-loan  was  authorized  in  March,  1812,  about 
three  months  before  war  was  formally  declared.^  The 
President  was  authorized  to  borrow  $11,000,000  at  six 
per  cent  interest,  payable  quarterly,  and  the  principal 
within  twelve  years  from  the  beginning  of  the  following 
year.  Stock  was  to  be  issued  for  the  amount  borrowed, 
and  the  public  revenues  were  pledged  for  its  payment.^ 

If  war  must  come,  surely  it  was  the  duty  of  the  gov- 
ernment to  make  adequate  preparation.  Yet  the  opposi- 
tion to  Gallatin  among  the  members  of  his  own  party  in 
Congress  was  so  strong,  that  they  seemed  more  desirous 
of  crushing  him  than  in  preparing  the  nation  for  the 
contest  with  Great  Britain.  The  day  the  loan-bill  was 
passed    he    wrote    to   Nicholson,  his   father-in-law,    '*  We 

1  Ways  and  Means  Report,  Jan.  20,  1812,  2  Finance,  p.  523. 

2  Act,  March  14,  12  Cong.,  first  session,  chap.  41. 

3  For  documents  relating  to  loan,  see  Niles's  Weekly  Beg.,  vol.  ii. 
pp.  91,  194. 


222      nXANCIAL  HISTORY  OF  THE  UNITED  STATEvS.      [1812. 

have  not  money  enough  to  last  till  the  first  of  January- 
next,  and  Gen.  Smith  [who  was  the  Republican  leader  in 
the  Senate  opposed  to  Gallatin]  is  using  every  endeavor 
to  run  us  aground  by  opposing  every  thing,  —  treasury- 
notes,  double  duties,"  etc.  It  may  be  asked,  "  Why  did 
not  the  President  select  another  man  for  secretary  of  the 
treasury,  who  could  secure  the  co-operation  of  his  party?" 
The  answer  is,  "  Gallatin  had  occupied  the  position  twelve 
years,  and  there  was  no  other  person  so  well  qualified  to 
discharge  the  duties  of  the  office."  To  dispense  with  his 
services  on  the  eve  of  war  was  a  step  which  Madison 
never  for  a  moment  thought  of  taking.  Not  until  Gal- 
latin's power  was  nearly  gone  could  the  President  part 
with  him,  and  even  then  with  great  reluctance.  Madi- 
son knew  his  worth,  and,  though  fully  comprehending  the 
situation,  retained  him  until  Gallatin  would  remain  no 
longer. 

Subscriptions  to  the  loan  were  opened  on  the  1st  and  2d 
of  May.  The  banks  w^ere  invited  to  subscribe,  and  so 
were  individuals.  The  former  were  permitted  either  to 
receive  stock,  or  to  loan  money  by  special  contract.  No 
limit  was  set  to  the  amount  of  subscriptions  for  any 
place,  and  the  loan  was  kept  open  only  two  days.  Dur- 
ing that  period  $4,190,000  were  subscribed  by  banks,  and 
••^l, 928,900  by  individuals.  The  last  figure  was  larger 
than  the  aggregate  of  all  the  loans  at  six  per  cent  ever 
before  obt;aiied  by  the  government  from  individuals  in 
the  United  States.  Considering  the  price  of  stocks,  and 
various  obstacles  which  at  that  time  impeded  subscrip- 
tions, the  amount  was  quite  as  great  as  there  was  any 
reason  for  expecting  within  so  short  a  period.     The  sub- 


1812.]  WAR-LOANS.  223 

scribers  were  required  to  pay  one-eighth  of  the  sum  sub- 
scribed at  the  time  of  subscribing,  and  a  similar  sum  on 
the  fifteenth  day  of  each  month  until  the  whole  was  paid. 
In  case  any  one  failed  to  pay  the  later  instalments,  the 
amount  previously  paid  was  forfeited  to  the  government.^ 
At  the  time  Gallatin  reported  what  subscriptions  had 
been  made  to  the  loan,  he  "submitted  the  propriety  of 
authorizing  the  issue  of  treasury-notes,"  from  which  ulti- 
mately flowed  grave  consequences  to  the  country.  More 
than  two  years  before,  he  had  declared  that  these  notes, 
bearing  interest,  and  payable  to  order  one  year  after  date, 
might  be  annually  issued  to  a  moderate  amount,  and  be 
put  in  circulation,  both  through  the  medium  of  banks,  and 
in  payment  for  supplies.  They  would  be  absorbed,  he 
said,  in  buying  the  public  lands,  and  in  discharging  reve- 
nue bonds ;  and  the  redemption  of  the  residue  could  be 
effected  by  loans.  To  issue  them  in  such  a  way  was  to 
anticipate  the  revenue,  —  a  policy  which  Gallatin  on  a 
former  occasion  had  quite  severely  criticised ;  but,  though 
liable  to  abuse,  he  affirmed,  that,  if  kept  within  strict 
bounds,  their  issue  might  facilitate  the  collection  of  the 
revenue,  and  the  raising  of  loans.  He  recommended  that 
no  more  be  issued  than  the  balance  of  the  loan  not  sub- 
scribed ;  that  five  and  two-fifths  per  cent  a  year  be  their 
rate  of  interest,  which  was  equal  to  a  cent  and  a  half  per 
day  on  a  hundred-dollar  note ;  that  the  time  for  their  pay- 
ment be  one  year  from  the  date  of  issue ;  and  that  the 
notes  be  receivable  for  all  dues  to  the  United  States.  Re- 
ceiving the  recommendation  favorably,  Congress  author- 

1  Gallatin's  Communication  to  the  House,  May  18,  1812,  2  Finance, 
p.  564. 


224      FINANCIAL  HISTOEY  OF  THE  UNITED  STATES.       [1813. 

izecl  the  President  to  issue  five  millions  in  the  manner 
suggested  by  Gallatin.^  They  were  transferable  by  deliv- 
ery and  assignment ;  and  the  commissioners  of  the  sinking- 
fund  were  directed  to  reimburse  them  when  due.  They 
were  also  authorized  to  buy  them,  like  other  evidences  of 
the  public  debt,  at  a  price  not  exceeding  par  for  the  prin- 
cipal and  interest  due  at  the  time  of  the  purchase.  Thus 
was  launched  a  new  financial  experiment,  the  fruit  of 
which  ripened  and  fell  after  a  short  season.^ 

The  military  events  of  the  first  year  of  the  war  were 
most  disastrous  and  humiliating  to  the  American  arms.^ 
Preparations  had  been  made  with  singular  slowness ;  an 
American  army  was  surrounded  and  captured  at  Detroit ; 
incompetence  was  displayed  alike  in  the  war  department 
and  in  the  field ;  the  fame  of  the  navy  was  saved  by  the 
success  of  two  or  three  frigates  which  had  been  built 
when  the  Federalists  were  in  power,  the  construction  of 
which  was  violently  resisted  by  their  political  opponents ; 
Jefferson's  gunboats  went  to  pieces  :  yet,  notwithstanding 
these  sickening  disasters.  Congress  remained  inactive.* 

The  expenditures  for  the  army  and  navy  had  been 
made  with  no  economy  or  efficiency.  Gallatin  had  la- 
bored industriously  but  hopelessly  to  diminish  them.  He 
told  Jefferson  there  were  only  two  practicable  ways  to 
do  this.  One  was  to  confine  them  to  necessary  objects ; 
and  the  other  was  to   introduce   a   perfect   system,  and 

1  Act,  June  30,  1812,  12  Cong.,  first  session,  chap.  111. 

'^  "Ways  and  Means  Report,  March  21,  1810,  11  Cong.,  second  session, 
2  Finance,  p.  412.  Gallatin's  Communication  to  the  House,  June  29, 1812, 
2  Finance,  p.  569. 

3  War  was  declared  June  18,  1812. 

*  Adams's  Life  of  Gallatin,  p.  467. 


1813.]  WAR-LOANS.  225 

suppress  abuses  in  the  necessary  branches.  "  I  have  no 
doubt,"  he  adds,  "  that  knowledge  and  talents  would  save 
several  millions,  and  the  necessary  business  be  better 
done."  1 

Early  in  October,  Gallatin  wrote  to  the  President  that 
the  army  and  navy  estimates  would  require  a  loan  of 
121,000,000  for  the  year  1813,  but  he  thought  that  such 
an  amount  was  "  unattainable."  Little  or  nothing  could 
be  expected  from  banks,  because  they  had  "  already  lent 
nearly  to  the  full  extent  of  their  facilities."  The  indi- 
vidual subscriptions  had  not  exceeded  i3,200,000. 

When  Gallatin  communicated  his  next  report  to  Con- 
gress, near  the  close  of  the  year,^  ^7,415,200  of  the  loan 
had  been  subscribed  in  stock  and  in  temporary  loans, 
bearing  six  per  cent  interest ;  the  sum  of  $1,350,000  was 
reimbursable  in  1813,  $750,000  in  1814,  $50,000  in  1815 ; 
and  the  amount  of  treasury  notes  issued  was  $3,535,000. 

Following  Gallatin's  recommendation,  Congress  author- 
ized a  loan  of  $16,000,000,  containing  several  new  fea- 
tures.^ The  President  was  authorized  to  "  sell  the  whole 
or  any  part  of  the  certificates  of  stock  issued  for  the  sums 
to  be  borrowed,"  without  any  limitation  whatever.  This 
authority  was  doubtless  conferred  by  Gallatin's  sugges- 
tion, that,  in  order  to  facilitate  the  loan,  it  might  "  be  eli- 
gible to  leave  some  discretion  with  the  executive  "  with 
respect  to  the  amount  of  stock  to  be  issued.  The  secre- 
tary of  the  treasury  was  authorized  to  employ  agents, 
with   the    approval  of  the  President,  to  obtain  subscrip- 

1  Adams's  Life  of  Gallatin,  p.  469. 

2  Dec.  7,  1812. 

3  Act,  Feb.  8,  1813,  12  Cong.,  second  session,  chap.  21. 


226      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1813. 

tions,  to  whom  one  quarter  of  one  per  cent  was  allowed 
on  the  amount  sold. 

When  Gallatin  opened  this  loan,  the  treasury  was 
nearly  exhausted ;  "  so  nearly,"  says  Adams,^  "  that  on 
the  1st  of  April  it  was  absolutely  empty,  and  must  have 
ceased  to  meet  the  requisitions  of  the  war  and  navy  de- 
partments. The  Federalists  were  in  high  hope  that  the 
loan  would  fail,  and  government  fall  to  pieces ;  and  they 
made  the  most  active  efforts  to  force  this  result."  To 
tempt  subscribers,  the}''  were  offered  an  annuity  of  a  dol- 
lar for  thirteen  years  on  every  sum  of  a  hundred  dollars 
subscribed ;  but  this  bait  was  not  tempting  enough  to 
draw  more  than  $3,956,400  into  the  treasury,  which  were 
subscribed  on  the  12th  and  13th  of  March.  The  ex- 
periment was  repeated  from  the  25th  to  the  31st  of  the 
same  month,  and  11,881,800  were  subscribed.  When  the 
second  notification  was  given,  proposals  were  invited  for 
loaning  to  the  government  the  whole  or  any  part  of  the 
sum  that  might  remain  unsubscribed  on  the  first  day  of 
April.  The  secretary  also  stated,  that,  if  the  proposals 
differed,  all  should  be  placed  on  the  same  footing,  includ- 
ing those  who  had  previously  subscribed.  The  govern- 
ment having  thus  placed  itself  at  the  feet  of  the  money- 
lenders, they  were  willing  to  propose  terms  for  loaning 
the  money  needed:  indeed,  proposals  exceeded  by  |944,- 
200  the  amount  which  could  be  received,  beside  $1,000,- 
000  subscribed  too  late  by  the  State  of  Pennsylvania. 
The  terms  proposed  by  the  lenders,  in  most  instances, 
were,  either  that  they  should  receive  a  six-per-cent  stock, 
with  interest  payable  quarterly  (redeemable,  at  the 
1  Life  of  Gallatin,  p.  477. 


1813.]  WAR-LOANS.  227 

pleasure  of  the  government,  after  1825),  at  the  rate  of 
eighty-eight  per  cent,  or  a  hundred  dollars  in  stock  for 
eighty-eight  dollars  in  money ;  or  that  the  lenders  for 
every  hundred  dollars  in  money  should  receive  a  hundred 
dollars  in  the  same  species  of  six-per-cent  stock,  and  an 
annuity  for  thirteen  years  from  the  1st  of  January,  1813, 
of  a  dollar  and  a  half,  payable  quarterly.  In  two  pro- 
posals, however,  was  inserted  the  condition,  that,  if  an- 
other loan  for  the  service  of  the  year  1813  were  made 
under  any  other  law  prescribing  different  terms  to  lenders, 
it  might  apply  to  them  if  they  desired.  The  former  pro- 
posal was  accepted,  which  was  equivalent  to  a  premium 
of  i  13.63j7-  on  every  sum  of  a  hundred  dollars  loaned  to 
the  government.  David  Parish  and  Stephen  Girard  sub- 
scribed for  half  the  loan,  and  John  Jacob  Astor  for  f  2,- 
056,000.1 

One  reason  why  no  better  terms  could  be  obtained  was 
because  Congress  shrank  from  providing  adequate  reve- 
nues to  maintain  the  government.  Internal  taxation  was 
absolutely  necessary,  because  the  revenues  from  imports 
had  heavily  declined ;  yet,  manifest  as  was  the  need  of 
taking  the  step.  Congress  hesitated.  Jones,  who  was  now 
acting  as  secretary  of  the  treasury,  Gallatin  having  been 
appointed  one  of  the  three  commissioners  to  make  peace, 
very  frankly  declared  that  "  the  terms  of  the  loan  would 
have  been  more  favorable,  if  the  taxes  had  been  previ- 
ously laid." 

Besides,  the  Federal  party  was  opposed  to  the  war,  and 
very  generally  declined  to  loan  money  to  the  government. 

1  For  terms  of  sixteen-million-dollar  loan,  see  Senate  Communication, 
July  29, 1813,  2  Finance,  p.  646. 


228      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1813. 

Opposition  was  strongest  in  New  England,  because  her 
interests  were  so  injuriously  affected:  at  no  period  did 
she  furnish  much  pecuniary  support.^ 

The  nature  of  Gallatin's  contract  with  Girard  and 
Parish  was  not  publicly  known  at  the  time  of  making  it, 
nor  until  the  secretary  was  far  away  from  Washington. 
When  its  terms  were  first  made  known  in  the  Senate,  a 
furious  outcry  arose.  It  could  not  be  shown  that  Galla- 
tin had  exceeded  his  authority;  and  surely,  if  he  could 
have  obtained  more  favorable  terms  for  the  government, 
he  would.  That  he  was  obliged  to  accept  such  hard  con- 
ditions proved  nothing  against  him ;  but  they  were  a 
mournful  proof  of  the  pitiable  plight  of  the  government 
at  the  very  outbreak  of  its  struggle  with  Great  Britain. 
Gallatin's  object  in  hiding  this  information  from  the  pub- 
lic eye  was  to  prevent  any  immediate  variation  in  the 
price  of  the  stock.  When  all  the  facts  surrounding  the 
transaction  appeared,  the  propriety  of  Gallatin's  conduct 
was  no  longer  questioned.^ 

Five  millions  of  treasury-notes  were  authorized  for  the 
year ;  forming,  however,  a  part  of  the  sixteen-million  loan. 
The  secretary  was  also  authorized  to  appoint  agents  to 

1  "The  proceeds  of  loans  (exclusively  of  treasury  notes  and  temporary 
loans)  paid  into  the  treasury  from  the  commencement  of  the  war  to  the 
end  of  the  year  1814  amounted  to  $41,010,000. 

"  Of  that  sum,  the  Eastern  States  sent  $2,900,000;  New  York,  Pennsyl- 
vania, Maryland,  and  the  District  of  Columbia,  $35,790,000;  the  Southern 
and  Western  States,  $2,320,000.  The  floating  debt,  consisting  of  outstand- 
ing treasury  notes  and  temporary  loans  unjjaid,  amounted  on  the  1st  of 
January,  1815,  to  $11,250,000,  about  four-fifths  of  which  were  also  due  to  the 
Middle  States."  —  Gallatin,  Consideration  on  the  Currency  and  Banking 
Syxtem  of  United  Stntes,  Writings,  vol.  iii.  p.  284. 

2  Incidents  in  Life  of  Jacob  Barker,  pp.  42-44. 


1814.]  WAR-LOANS.  229 

sell  them,  who  were  to  receive  a  commission  of  one- 
quarter  of  one  per  cent.^ 

The  expenditures  greatly  exceeding  the  estimates  of 
the  secretary,  it  was  seen,  before  six  months  of  the  year 
were  gone,  that  another  loan  must  be  made.  This  was 
fixed  at  $7,500,000 ;  but  the  Act  contained  a  stipulation 
that  no  certificates  of  the  stock  should  be  sold  at  less 
than  eighty-eight  per  cent.^  Proposals  were  invited ;  and 
the  offers  were  slightly  better  than  those  for  the  former 
loan,  averaging  $88.25  in  money  for  a  hundred  dollars 
in  stock,  which  were  equivalent  to  $13.31 1  on  each  sum 
of  a  hundred  dollars  loaned  to  the  government.^ 

In  March,  the  next  year,  the  President  was  authorized 
to  borrow  $25,000,000,  without  restriction,  save  that  the 
loan  might  be  paid  whenever  the  government  desired, 
after  twelve  years.^  A  loan  was  opened  the  2d  of  May 
for  $10,000,000  only,  the  secretary  of  the  treasury  be- 
lieving he  was  more  likely  to  succeed  than  if  he  attempted 
to  get  the  whole  amount  at  once.  The  sums  offered 
amounted  to  $11,900,806,  of  which  $2,671,750  were  at 
less  than  eighty-eight  per  cent,  and  $1,183,400  at  less 
than  eighty-five.  Of  the  $9,229,056  offered  at  eighty- 
eight  per  cent,  a  condition  accompanied  the  offer  of 
$5,000,000,  that,  if  terms  more  favorable  were  allowed  to 
lenders  for  any  part  of  the  entire  loan,  the  same  terms 
should  be  allowed  to  all.  Notwithstanding  this  condi- 
tion, the  need  of  money  was  so  great  that  the  loan  was 

1  Act,  Feb.  25,  12  Cong.,  second  session,  cbap.  27. 

2  Act,  Aug.  2,   1813,  13  Cong.,  first  session,  chap.  51. 

3  Jones's  Report,  Jan.  10, 1814,  and  accompanying  papers. 

4  Act,  March  24,  1814,  13  Cong.,  second  session,  chap.  29. 


230      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1814. 

accepted.  In  doing  so,  the  treasury  thought  of  the  early 
return  of  peace,  the  importance  of  maintaining  in  the 
mean  time  the  public  credit  by  sustaining  the  price  of 
the  government  stock,  and  also  that  the  contract  was  sanc- 
tioned by  precedent.  Had  the  five-million  offer  been 
rejected,  the  amount  offered  at  eighty-eight  per  cent  would 
have  been  reduced  to  less  than  |>5,000,000,  —  a  sum  alto- 
gether inadequate  to  the  public  demands ;  or,  by  depressing 
the  stock  to  eighty-five  per  cent,  only  a  little  more  than 
$6,000,000  would  have  been  received.  Offers  amounting 
to  $566,000  were  subsequently  made  and  accepted  on  the 
same  terms  as  those  described.  Thus  the  loan  was  aug- 
mented to  $9,795,056. 

The  loan  was  to  be  j)aid  in  four  instalments.  Camp- 
bell was  secretary  of  the  treasury,  but  he  possessed  nei- 
ther the  requisite  talents  nor  the  physical  strength  to 
perform  the  duties  of  his  office.  Consequently  the  busi- 
ness of  negotiating  loans  was  A'ery  largely  confided  to 
Mr.  Sheldon,  the  chief  clerk,  who  was  opposed  to  the 
war,  and  unceasing  in  his  efforts  to  throw  obstructions 
in  the  path  of  those  who  were  trying  to  aid  the  gov- 
ernment. It  was  agreed  in  the  beginning,  that,  when 
instalments  were  paid,  funded  stock  should  be  issued. 
When,  however,  the  first  instalment  was  paid,  instead 
of  issuing  funded  stock  therefor,  the  secretary  issued 
scrip  certificates  for  the  amount,  retaining  the  stock  as 
security  for  the  payment  of  the  other  instalments.  The 
holders  desired  stock,  because  they  could  pledge  it  to 
the  banks  or  sell  it ;  but  they  could  do  nothing  with 
their  certificates,  save  to  keep  them  until  all  the  instal- 
ments  were   paid,   and   then    exchange    them   for  stock. 


1814.]  WAR-LOANS.  231 

After  long  importuning,  the  secretary  concluded  to  issue 
certificates  of  funded  stock  for  nineteen-twentieths  of 
it.  "  This  one-twentieth  part,"  he  says  in  a  letter  to 
Barker,^  the  largest  lender,  "  is  retained  in  scrip  as  the 
assurance  for  the  payment  of  the  next  instalment."  The 
certificates  of  stock  did  not  mention  a  very  important 
part  of  the  agreement;  namely,  that,  if  subsequent  par- 
ticipants in  the  twenty-five-million  loan  obtained  better 
terms,  they  should  likewise  include  all  lenders  of  money 
to  the  government  under  that  loan.  This  omission  ex- 
cited distrust  and  dissatisfaction.  Such  treatment  of  the 
lenders  by  the  secretary  did  not  improve  the  credit  of 
the  government.  At  a  time  when  money  was  sorely 
wanted  at  almost  any  price,  the  policy  of  estranging  pub- 
lic lenders  by  changing  the  conditions  of  a  formal  contract 
without  their  consent,  was  as  unexpected  as  it  was  disas- 
trous, both  to  the  government  and  to  individuals.  Some 
of  those  who  had  promised  to  lend  money  were  unable 
to  fulfil  their  promises.  Had  the  secretary  of  the  treasury 
promptly  issued  stock  when  the  instalments  were  paid, 
the  lenders  would  have  been  able  to  borrow  money  by 
pledging  the  stock,  and  thus  would  have  secured  funds 
for  paying  further  instalments.^ 

In  August  proposals  were  invited  for  a  loan  of  16,000,- 
000.  The  whole  amount  offered  was  only  $2,823,300 ;  of 
which  sum  1100,000  were  at  rates  less  than  eighty  per 
cent,  and  $2,213,000  were  at  the  rate  of  eighty  dollars  in 
money  for  one  hundred  dollars  of  six-per-cent  stock.  The 
remaining  sura  of  $510,300  was  offered  at  various  rates 
between  eighty  and  eighty-eight.      Notwithstanding  the 

1  Inci  leiit.s  in  the  Life  of  Jacob  Barker,  p.  C5.        ^  ibid,,  p.  78. 


232      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1814. 

reduced  rate  at  which  the  greater  part  of  the  money  was 
offered,  the  market-price  of  the  stock  having  fallen  below 
eighty  per  cent,  with  no  prospect  of  getting  money  on 
better  terms,  the  amount  offered,  even  at  that  low  rate, 
was  accepted.  At  that  price  there  was  another  subscrip- 
tion for  a  small  amount,  but  this  was  more  than  swept 
away  by  those  who  failed  to  execute  their  proposals ;  so 
that,  of  the  16,000,000  wanted,  only  12,520,300  could  be 
borrowed.^ 

The  failure  of  this  loan  was  intensified  by  the  unpleas- 
ant consideration,  that,  having  agreed  to  sell  its  stock  at 
a  discount  of  twenty  per  cent,  the  government  was 
obliged  to  grant  a  further  discount  of  eight  per  cent  to 
those  who  had  subscribed  to  the  ten-million  loan.  The 
treasury  department  at  first  declined  to  issue  supple- 
mental stock  for  the  difference,  although  its  obligation 
to  do  so  could  not  have  been  more  clearly  expressed. 
Moreover,  to  refuse  to  recognize  the  just  claims  of  cred- 
itors at  such  a  critical  emergency,  when  the  credit  of  the 
government  had  ebbed  so  alarmingly  low,  was  an  extraor- 

1  The  finances  were  in  such  a  low  state,  that  many  thought  it  would 
be  impossible  for  the  government  to  maintain  its  army  and  navy.  The 
banks  of  New  York  refused  to  loan  their  bills  without  additional  security. 
"It  was  understood,  however,  that,  if  treasury-notes  indorsed  by  Gov. 
Tompkins  were  deposited,  the  money  would  be  forthcoming.  Rufus 
King  iiumediately  waited  u])on  the  governor,  and  acquainted  him  with  the 
fact.  '  I  should  be  obliged  to  act  on  my  own  responsibility,  and  should  be 
ruined,'  replied  Tompkins.  '  Then  ruin  yourself,  if  it  become  necessary 
to  save  the  country,  and  I  pledge  you  my  honor  that  I  will  support  you  in 
whatever  you  do,'  exclaimed  King.  Oliver  Wolcott,  jiresident  of  the  Bank 
of  America,  and  other  prominent  Federalists,  uttered  similar  sentiments. 
Tompkins  indorsed  the  notes  on  his  own  personal  and  oflScial  security,  and 
half  a  million  was  promptly  loaned." — Mrs.  Lamb's  History  of  City  of 
2scw  York,  vol.  ii.  p.  648. 


1814.]  WAR-LOANS.  233 

dinary  act  of  folly.  When  Dallas  succeeded  Campbell, 
he  readily  acknowledged  the  justness  of  the  claim,  but 
required  the  lenders  to  waive  every  future  claim  of  the 
kind,  whatever  might  be  the  price  of  their  selling  gov- 
ernment stocks.  They  insisted  on  receiving  their  supple- 
mental stock.  At  the  same  time  they  would  not  relinquish 
any  right  that  might  spring  from  their  contract.  Jacob 
Barker,  who  was  the  heaviest  lender,  represented  the 
whole  number,  and  he  pressed  their  claim  with  great 
energy.  Finally  Dallas  acceded,  and  the  supplemental 
stock  was  issued  without  any  modification  of  the  original 
agreement. 

To  evade  the  possible  consequence  of  issuing  more 
sup])lemental  stock  to  the  holders  of  the  twenty-five- 
million  loan,  a  new  loan  for  three  million  dollars  was  au- 
thorized by  Congress,^  although  the  proceeds  were  to  be 
devoted  to  the  same  purposes  as  the  money  derived  from 
the  former  one.  This  subterfuge  was  too  transparent  to 
be  successful.2  The  loan  was  opened,  and  the  stock  was 
taken  principally  by  the  banks  west  and  south  of  New 
England ;  but  having  suspended  specie  payments,  al- 
though they  paid  eighty  dollars  a  share  for  their  stock, 
their  notes  were  equivalent  only  to  sixty-five  in  specie, 
—  the  money  in  which  the  holders  of  the  twenty-five- 
million  loan  had  paid  for  their  stock.  These  now  insisted 
on  receiving  the  difference  of  fifteen  per  cent  in  stock, 
but  this  claim  was  stoutly  resisted.  Dallas  asked  for 
proof  of  the  claim.  Just  as  the  demand  was,  over  forty 
years  passed  before  the  claim  was  allowed.     Again  and 

1  Act,  Nov.  15,  1814,  13  Cong.,  third  session,  chap.  4. 

2  Incidents  in  Life  of  Jacob  Barker,  p.  103. 


234      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1814. 

again  was  it  placed  before  the  secretary  of  the  treasury 
and  before  Congress,  but  its  acknowledgment  was  de- 
layed. Not  until  1855  did  Congress  render  justice,  and 
authorize  its  payment. 

The  experiment  was  now  tried  of  negotiating  a  loan  in 
Europe.  These  had  been  successful  under  the  Confed- 
eration, and  during  the  early  years  of  the  government; 
but  from  that  quarter  nothing  could  be  drawn  at  this 
truly  critical  hour.^ 

There  were  now  in  circulation  nearly  $8,000,000  of 
treasury-notes,  more  than  one-half  of  which  were  redeem- 
able in  the  last  quarter  of  the  year.  A  part  of  them,  it 
was  believed,  could  be  replaced  with  new  notes ;  yet  more 
than  16,000,000  would  still  remain  in  circulation,  which 
the  experience  of  the  last  two  years  had  shown  to  be 
as  many  as  would  freely  circulate  while  the  public  con- 
fidence in  bank-notes  lasted.  The  secretary  of  the 
treasury  indulged  in  the  hope  of  circulating  a  few  more 
by  issuing  notes  of  a  smaller  denomination,  but  in  no 
event  did  he  expect  that  the  amount  would  be  increased. 

The  prospect,  therefore,  of  raising  funds  to  sustain  the 
government,  was  indeed  cheerless,  and  grew  darker  every 
day.  All  the  banks,  save  those  of  New  England,  had 
suspended   specie  payments;  and  their  issues  were  now 

1  To  effect  this  purpose,  the  requisite  powers  and  instructions  were 
given  for  negotiating  a  loan  for  six  million  dollars,  which  was  a  part  of  the 
twenty-five-million  loan  authorized  by  the  Act  of  March  24.  Six-per-cent 
stock  was  transmitted  with  directions  for  selling  it,  if  that  should  be  found 
the  most  advantageous  mode  for  obtaining  the  money  (Sec.  Campbell's 
Report,  Sept.  26, 1814).  Dallas  says  that  three  millions  of  stock  were  issued, 
and  sent  to  Europe,  but  not  sold  {Letter  to  Committee  of  Ways  and  Means, 
Feb.  24,  1815). 


1814.] 


WAR-LOANS.  235 


resting  on  miry  ground.     Campbell  was  secretary  of  the 
treasury,  and,  though  he  had  held  the  office  for  only  a 
short    time,   was    sinking    under   the   heavy  burden   he 
was  trying  to  bear.     If   more  loans  must  be  issued,  he 
recommended  that  additional  inducements  be  offered  to 
capitalists  to  advance  money,  by  providing  an  ample  and 
unequivocal    security   for    the    regular    payment   of  the 
interest,   and   reimbursement  of   the    principal,   of  such 
loans    as    might   be   obtained.     This  could   be    effected 
by    establishing    an    adequate    revenue,   and    by   pledg- 
ing  it   specifically   for   that  purpose.     He   also   inquired 
whether   the  treasury-notes,  by  augmenting  the   rate  of 
interest    they    bore,    and    securing    their    payment,    as 
well   as   their   eventual   reimbursement,  by  an  adequate 
revenue    pledged    for    that    purpose,    would    not    have 
better   credit,  and  their  circulation   be  encouraged,  and 
thus    fulfil    with  more    certainty    the    purposes    of    the 
government. 

One  thing  was  clear :  the  plan  of  finance  adopted  at  the 
beginning  of  the  war  had  proved  unsuccessful.  On  no 
reasonable  terms  could  loans  be  annually  obtained  for 
the  amount  of  extraordinary  expenditures  occasioned  by 
the  war.  Says  Campbell,  in  his  report  to  the  Senate,  "The 
experience  of  the  present  year  furnishes  ground  to  doubt 
whether  this  be  practicable,  at  least  in  the  shape  in  which 
loans  have  been  hitherto  attempted.  Nor  is  it  even  certain 
that  the  establishing  and  pledging  of  revenues  adequate 
to  the  punctual  payment  of  the  interest,  and  eventual 
reimbursement  of  the  principal,  of  the  sums  which  will 
be  required  for  the  service  of  the  year  1815,  would  enable 
the  treasury  to  obtain  them  through  the  medium  of  loans 


236      FINANCIAL  HISTOKY  OF  THE  UNITED  STATES.       [1814. 

effected  in  the  ordinary  way."  ^  He  therefore  favored  the 
policy  of  deeper  and  wider  taxation,  —  enough  to  pay  a 
portion  of  the  war  expenditures. 

A  similar  opinion  was  echoed  by  the  Committee  of  Ways 
and  Means  a  few  months  later.  "A  reliance  on  loans,  in 
the  present  situation  of  this  country,  would  be  uncertain, 
and  the  terms  on  which  they  could  be  obtained  not  such 
as  to  induce  a  resort  to  them  at  the  present  moment." 
The  credit  of  the  government  was  gone. 

How,  then,  were  funds  to  be  provided  for  carrying  on 
the  war  ?  The  Committee  of  Ways  and  Means  could  think 
of  no  better  mode  than  to  issue  treasury-notes,  combined 
with  a  system  of  increased  taxation.  The  want  of  some 
medium,  it  was  affirmed,  resting  on  a  solid  basis,  uniting 
public  confidence,  and  having  a  general  instead  of  a  local 
circulation,  was  universally  acknowledged.  The  stoppage 
of  specie  payments  by  the  principal  banks  of  the  Middle 
States  had  greatly  embarrassed  the  operations  of  the 
treasury,  and,  by  confining  the  circulation  of  notes  to  the 
limits  of  the  States  within  which  they  were  issued,  had 
deprived  the  government  of  all  facilities  in  remitting 
money  which  was  afforded  while  public  confidence  gave 
to  bank-notes  a  general  circulation.  The  notes  of  New 
York  and  Philadelphia  would  not  be  received  in  Boston. 
The  notes  of  Baltimore  and  of  the  District  of  Columbia 
would  not  answer  for  payments  in  Philadelphia.  If,  there- 
fore, treasury-notes  could  supply  the  place  of  a  circulating 
medium  between  the  different  States,  they  would  greatly 
facilitate  the  operations  of  the  government,  and  free 
the  transactions  of  individuals  from  embarrassment.     To 

1  Sept.  26,  1814,  2  Finance,  p.  840. 


1814.]  M' ATI-LOANS.  237 

secure  these  ends,  the  committee  proposed  to  issue  the 
notes  in  sums  sufficiently  small  for  the  ordinary  purposes 
of  business;  to  allow  the  individual  who  held  them  to 
fund  them,  whenever  he  desired,  at  any  of  the  loan- 
offices,  and  to  receive  the  amount  in  stock  of  the  United 
States,  bearing  eight  per  cent  interest ;  to  make  them 
payable  to  bearer,  and  transferable  by  delivery,  receivable 
in  payment  for  public  land  and  taxes  ;  and,  lastl}^  to 
pledge  for  the  payment  of  the  amount  issued  whatever 
internal  duties  were  needed.  To  prevent  an  excessive 
accumulation  of  them,  the  committee  proposed  that  the 
government  should  retain  the  power,  after  six  months' 
notice,  to  redeem  them  with  specie,  or  exchange  them  for 
stock  bearing  six  per  cent  interest.  If  these  things  were 
done,  and  taxes  were  imposed  which  should  manifest 
clearly  the  ability  of  the  government  to  meet  its  engage- 
ements,  they  confidently  believed  the  difficulties  sur- 
rounding it  would  vanish,  confidence  be  restored,  "and 
the  capital  hoarded  by  avarice,  or  locked  up  from 
timidity,"  would  appear  in  the  accustomed  channels  of 
circulation.^  Congress,  however,  declined  to  change  the 
mode  of  issuing  them ;  and  17,500,000  were  authorized  in 
the  former  way,  though  at  the  time  of  doing  this  nearly 
$22,000,000  were  due  and  unpaid.2 

Toward  the  close  of  the  year,  Jefferson  suggested  the 
expediency  of  issuing  paper  money  gradually  to  the  amount 
of  $200,000,000.  "  He  had,"  says  Gallatin,  "  from  the  im- 
perfect data  in  his  possession,  greatly  overrated  the  amount 

1  Report  on  the  State  of  the  Finances,  Oct.  10,  1814,  2  Finance,  p.  854. 
-  Dallas's  Letter  to  Com.  of  Ways  and  Means,  Dec.  5, 1814,  2  Finance, 
p.  877. 


238      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1815. 

of  paper  currency  which  could  be  sustained  at  par ,  and 
he  had,  on  the  other  hand,  underrated  the  great  expenses 
of  the  war.  Yet  we  doubt  whether,"  so  Gallatin  adds, 
"  in  the  state  to  which  the  banks  and  the  currency  had 
been  reduced,  much  greater  issues  of  treasury-notes,  or 
other  paper  not  convertible  at  will  into  specie,  would 
have  become  necessary,  if  the  war  had  been  of  much 
longer  continuance."  ^ 

The  secretary  recommended  that  authority  be  granted 
to  emit  ^15,000,000  of  treasury-notes,  in  such  denomi- 
nations as  he  might  direct,  with  the  approval  of  the 
President.  Those  for  twenty  dollars  or  more  were  to  be 
paj'able  to  order,  and  bear  an  annual  interest  of  five  and 
two-fifths  per  cent :  those  for  a  smaller  sum  were  to  be 
payable  to  the  bearer,  and  carry  no  interest.  They  were 
to  be  exchangeable,  however,  in  sums  not  less  than  one 
hundred  dollars,  for  certificates  of  stock  bearing  seven 
per  cent  interest,  and  redeemable  after  twelve  years  from 
date.  The  notes  were  to  be  receivable  in  all  payments 
throughout  the  country,  but  in  such  cases  could  be 
re-issued.  They  were  to  be  payable  in  five  annual  in- 
stalments. The  reimbursement  of  the  notes  was  to  be 
effected,  either  by  the  payment  of  the  principal  and  inter- 
est to  the  holders,  or  by  taking  out  of  circulation  and 
destroying  the  amount  of  the  instalments  in  notes  paid  to 
the  United  States  for  duties,  taxes,  or  other  demands. 

Two  months  later  the  secretary  referred  to  the  subject 
in  a  communication  to  the  House.^  The  total  issue,  in- 
cluding those  which  had  been  ordered,  was  $18,637,- 
436.80.     Shortly  afterward  Congress  authorized  the  issue 

1  Writings  of  Gallatin,  vol.  iii.  p.  338.  2  peb.  20, 1815. 


1815.]  WAR-LOANS.  239 

of  $25,000,000,  adopting  the  mode  recommended  by  the 
secretary  of  the  treasury.^  The  law  was  enacted  the 
24th  of  February .2  It  was  soon  discovered  that  the  small 
notes,  which  were  convertible  into  stock  bearing  seven 
l^er  cent  interest,  though  convenient  for  a  circulating 
medium,  were  thus  converted  almost  as  soon  as  they  were 
issued.  Accordingly,  their  issue  was  restricted  to  cases 
of  peculiar  urgency,  like  paying  the  army  preparatory  to 
its  reduction,  payment  of  dividends  on  the  public  debt 
when  local  currency  could  not  be  procured,  and  the 
payment  of  an  inconsiderable  amount  of  miscellaneous 
claims.  The  total  amount  issued  for  these  purposes  to 
the  end  of  September  was  $2,777,860.  A  small  quantity 
was  sold  for  the  purpose  of  raising  funds  to  meet  the 
general  engagements  of  the  treasury.  The  amount  was 
$1,365,000,  which  were  sold  at  an  advance  of  $32,107.64. 
The  notes  of  a  larger  denomination  than  twenty  dollars, 
which  could  not  be  converted,  were  issued  in  larger  quan- 
tity.3 

About  the  same  time  that  Congress  was  authorizing 
the  issue  of  these  treasury-notes,  authority  was  granted 
for  making  the  final  loan  of  the  war.^  Dallas  had  recom- 
mended a  loan  of  $25,000,000  on  the  most  advantageous 
terms  that  could  be  obtained.  Congress  limited  the  sum 
to  $18,452,800,  and  allowed  the  secretary  of  the  treasury 
to  accept  in  payment  treasury-notes  which  had  been  pre- 
viously issued. 

1  Dallas's  Letter  to  Com.  of  "Ways  and  Means,  on  Estimated  Revenues 
for  1815,  Feb.  25,  1815,  2  Finance,  p.  910. 

2  1815.  3  Dallas's  Annual  Report,  Diecember,  1815. 
*  Act,  March  3,  1815,  13  Cong.,  third  session,  chap.  87. 


240      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1815. 

The   loan    covered    the    following    issues   of  treasury- 
notes  :  — 

Those  paj'able  on  the  1st  of  January,  1815,  the  principal 

and  interest  of  which,  due  and  unpaid,  amounted  to,     $2,799,200 

Later  issues 620,000 

Notes  payable  almost  daily  from  the  11th  of  March,  1815, 

to  the  1st  of  January,  1816         .....       7,227,280 

Those  payable  from  the  11th  of  January,  1816,  to  the  1st 

of  March,  1816 7,806,320 


118,452,800 1 

On  the  10th  of  March  a  loan  was  opened  for  112,000,- 
000,  with  the  view,  first,  of  absorbing  a  portion  of  the 
treasury-note  debt ;  secondly,  of  getting  funds  for  paying 
the  unsubscribed  arrearages  of  that  debt ;  and,  lastly,  of 
aiding  the  treasury  with  a  supply  of  the  local  currencies 
of  different  places  in  some  proportion  to  the  probable 
amount  of  the  local  demands. 

The  offers  to  subscribe  to  the  loan  prior  to  the  19th  of 
April  put  money  and  treasury-notes  on  the  same  plane ; 
but  the  offers  greatly  varied,  swinging  from  eight3Miine 
per  cent  to  seventy-five.  Dallas  was  a  very  different 
financier  from  his  two  immediate  predecessors:  he  quickly 
saw  that  a  new  course  of  proceeding  was  required,  and 
he  had  boldness  enough  to  enter  upon  it.  He  declared 
that  neither  the  justice  due  to  the  public  creditor,  nor  a 
fair  estimate  of  the  value  of  the  public  property,  nor  an 
honorable  regard  for  the  public  credit,  permitted  the  loan 
to  assume  the  character  of  a  scramble,  shifting  in  price  in 
every  town  and  village  of  every  State,  according  to  the 

1  Dallas's  Communication  on  the  Public  Debt,  March  2, 1815,  2  Finance, 
p.  916. 


1815.]  WAR-LOANS.  241 

arbitrary  variations  of  what  was  called  the  difference  of 
exchange.  He  declined,  therefore,  in  the  first  instance, 
all  the  offers  of  subscription  to  the  loan.  At  the  same 
time,  he  declared  that  offers  at  the  rate  of  ninety-five  per 
cent  would  be  accepted.  In  proposing  this  rate  the  sec- 
retary was  moved  by  several  considerations,  —  the  value 
of  the  stock,  the  equitable  and  also  the  legal  claim  of 
the  holders  of  treasury-notes,  and  the  real  condition  of 
the  public  credit.  Numerous  offers  were  made  at  this 
rate,  payable  in  treasury-notes  or  money,  soon  after  the 
promulgation  of  the  secretary  of  the  treasury's  decision. 
In  the  District  of  Columbia  the  money  subscriptions  (in- 
cluding the  subscriptions  of  certain  liquidated  claims  on. 
the  treasury)  were  successively  at  ninety-five,  ninety-six 
and  a  half,  ninety-seven,  and  ninety-eight  per  cent,  and 
finally  at  par.  In  Baltimore  the  money  subscriptions 
were  at  ninety-five  and  ninety-six  and  a  half  per  cent. 
In  Philadelphia  all  the  subscriptions  were  at  the  former 
rate.  On  the  18th  of  June  the  price  Avas  raised  at  the 
treasury  to  ninety-eight  per  cent.  No  offers,  however, 
were  made  at  the  increased  rate,  though  they  were  still 
received  at  ninety-five  and  ninety-six  per  cent.  The  sub- 
scriptions payable  in  treasury-notes  were  made  in  all 
places  at  the  same  rate  of  ninety-five  per  cent.  When 
Dallas  made  his  annual  report  at  the  close  of  1815,  there 
had  been  received  in  money  and  treasury-notes  $9,284,- 
044.38.     Such  is  the  history  of  the  war-loans  of  1812.1 

1  For  these  loans  of  $80,000,000,  the  government  obtained  but  ,534,000,000, 
after  deducting  discounts  and  dei^reciation.  —  Eeport  of  Com.  of  Ways  and 
Means,  April  13,  1830. 


242      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1807. 


CHAPTER    II. 

TAXATION. 

The  principal  reason  why  the  treasury  broke  down, 
during  the  war  of  1812,  was  because  Congress,  in  the 
beginning,  dared  not  go  deep  enough  into  the  pockets  of 
the  people.  Gallatin  and  others  saw,  that,  if  war  were 
declared,  the  resources  of  the  government  from  imports 
would  greatly  diminish ;  yet  for  a  long  time  Congress 
would  not  listen  to  the  appeals  of  the  treasury,  either  to 
increase  the  duties,  or  to  introduce  internal  taxes.  It  is 
true  that  Gallatin  at  first  hoped  to  escape  from  the  pain- 
ful necessity  of  resorting  to  internal  taxation ;  and  per- 
haps it  might  have  been  avoided,  had  Congress  promptly 
heeded  his  advice,  and  levied  higher  taxes  on  imports. 
In  his  report  for  1807,  while  remarking  that  it  might  be 
premature  to  enter  into  a  particular  detail  of  the  several 
branches  of  revenue  which  might  be  selected,  in  order  to 
provide  for  the  interest  of  war-loans,  and  to  cover  defi- 
ciencies in  case  the  existing  revenue  should  fall  below 
$7,000,000,  he  did,  nevertheless,  tell  Congress  that  the 
duty  on  salt,  and  the  Mediterranean  duties,  could  be  im- 
mediately revived,  and  that  the  duties  "on  importations 
generally  be  considerably  increased,  perhaps  doubled,  with 
less  inconvenience  than  would  arise  from  any  other  mode 
of  taxation."     Indirect   taxes,    too,   he   declared,  would 


1807.]  TAXATION.  243 

doubtless  be  cheerfully  paid  as  war  taxes,  if  necessary. 
Nor  did  he  fear  to  remind  Congress  of  direct  taxation  as 
a  fountain  whence  resources  might  be  drawn  to  maintain 
the  government. 

Congress,  however,  heeded  none  of  his  suggestions,  save 
to  make  inquiry  of  him  concerning  the  propriety  of  contin- 
uing the  Mediterranean  Fund.  In  his  reply,  he  told  the 
Committee  of  Ways  and  Means,  that,  if  war  occurred,  the 
revenue  would  be  so  much  affected,  that  additional  taxes 
or  duties  would  be  required.  The  deficiency  would  not  be 
felt  during  that  year ;  but  it  would  be  the  year  following  : 
it  was  expedient,  therefore,  to  provide  for  the  deficiency .^ 
Congress  was  not  so  resolute  in  any  thing  as  in  refusing 
to  face  the  situation. 

Had  the  duties  been  doubled  in  January,  1808,  the 
receipts  into  the  treasury  for  that  and  the  ensuing  year 
would  have  been  increased  nine  or  ten  million  dollars. 
But  they  were  not :  consequently,  during  the  year  the 
revenues  declined,  because  the  embargo  which  the  gov- 
ernment had  established  was  now  in  operation.  Gallatin 
therefore  urged  an  increase  of  the  duties.  He  proposed 
continuing  the  Mediterranean  Fund,  and  doubling  all 
existing  duties  on  importations.  He  also  suggested  the 
propriety  of  repealing  that  provision  of  the  embargo 
law  which  allowed  a  drawback  on  articles  exported  more 
than  one  year  after  they  had  been  imported.  A  modifi- 
cation, it  was  believed,  would  check  speculations  and  mo- 
nopolies. The  diminution  of  importations  had  afforded 
sufficient  profits  on  most  of  the  articles  which  had  been 

1  Letter  to  Chairman  of  Com.  of  Ways  and  Means,  Dec.  28,  1807,  2 
Finance,  p.  263. 


244      FINANCTAT.  HISTORY  OF  THE  UNITED  STATES.       [1810. 

imported;  and  a  provision  wliicli  would  have  the  effect 
of  bringing  those  things  into  market,  and  lessening  their 
price,  would  be  beneficial.  Another  measure  recom- 
mended by  him  was  a  non-intercourse  Act  with  Great 
Britain.  The  causes  which  induced  the  adoption  of  a 
partial  non-importation  Act  had  ceased  to  exist.  The 
selection  of  interdicted  articles  was  founded  on  the 
possibility  of  obtaining  them  from  other  countries  than 
England,  and  did  not  agree  with  existing  circumstances. 
The  Act  had  only  increased  the  temptations,  and  created 
habits  of  smuggling,  beside  impairing  the  revenue.  "A 
general  non-intercourse  Act,"  Gallatin  contended,  "  would 
supersede  that  partial  measure,  and  might  be  executed 
with  greater  facility."  Under  every  event,  he  added,  its 
repeal  would  be  beneficial,  and  a  permanent  increase  of 
duties  on  articles  selected  with  reference  to  those  which 
might  be  manufactured  in  the  United  States  would  be 
preferable.  ^ 

At  this  time  no  internal  taxes,  either  direct  or  indirect, 
were  contemplated,  even  if  hostilities  should  occur.  Ex- 
cept authority  to  borrow  money,  and  the  practice  of  econ- 
omy in  all  the  departments  of  the  government,  nothing 
more  appeared  necessary  to  Gallatin  "  than  such  modifi- 
cations and  increase  of  the  duties  on  importations  as  were 
naturally  suggested  by  existing  circumstances." 

But  Gallatin's  recommendations  were  not  heeded.  The 
next  year,  and  the  year  following,  they  were  faithfully 
repeated  :  still  Congress  refused  to  act.^  As  the  country 
neared  the  verge  of  war,  Gallatin's  tones  grew  sharper ; 

1  Annual  Rejiort,  December,  1808. 

2  Ways  and  Means  Rei>ort,  Jan.  8,  1810,  2  Finance,  p.  412. 


1811.]  TAXATION.  245 

but  they  fell  on  unlistening  ears.  American  commerce 
was  fast  disappearing  from  the  ocean ;  the  national  reve- 
nues were  rapidly  declining ;  the  country  was  getting 
deeper  and  deeper  into  the  toils  with  Great  Britain  and 
France ;  Jefferson  was  trying  the  shameful  policy  of  play- 
ing the  nation  off  between  these  two  contending  powers, 
firmly  believing  that  either  was  willing  to  make  almost 
any  concession  in  order  to  secure  its  support.  In 
truth,  neither  feared  the  United  States,  nor  cared  much 
for  her  influence.  Congress  became  stupid,  and  mani- 
fested but  little  vigor,  except  when  the  faction  opposed  to 
Gallatin  raised  the  cudgels  to  strike  him,  or  plotted  in 
secret  to  secure  his  overthrow.  Thus  the  revenues  con- 
tinued to  decline.  Deficiencies  were  covered  with  the 
proceeds  of  loans.  No  new  taxes  were  imposed  until  the 
close  of  1811,  when  the  Committee  of  Ways  and  Means 
could  no  longer  evade  the  question  of  increasing  the  rev- 
enue. The  chairman  (Ezekiel  Bacon)  was  a  friend  of 
Gallatin;  and  he  asked  the  secretary  several  questions 
concerning  an  increase  of  the  revenue,  which  drew  forth 
an  elaborate  reply,  that  finally  awakened  Congress  to  a 
realization  of  the  financial  peril  to  which  the  country  was 
exposed. 

Believing,  that,  if  war  occurred,  not  more  than  $2,500,- 
000  of  duties  would  be  received,  he  declared,  "without 
hesitation,"  that  the  rate  of  duties,  in  the  event  of  war, 
might  be  doubled  without  danger  or  inconvenience. 
Should  Congress  do  this,  there  would  be  less  danger  of 
smuggling  than  existed  at  that  time.  Even  thus  in- 
creased, they  would  be  less  on  an  average  than  those 
paid  on  importations  in  England,  France,  and  most  other 


246      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1811. 

countries.  They  would  be  collected  with  more  care  by 
the  government,  and  less  inconvenience  to  the  people, 
than  could  the  same  amount  from  any  other  source. 

The  long  delay  to  increase  the  duties  on  importations 
had  necessitated  the  collection  of  a  revenue  from  internal 
sources.  When  Gallatin  said,  at  the  close  of  1808,  that 
no  internal  taxes,  either  direct  or  indirect,  were  contem- 
plated, even  in  the  case  of  hostilities  against  the  two 
belligerent  powers,  a  balance  of  $14,000, 000,  nearly,  was 
in  the  treasury.  "  Aware  that  this  surplus  would  shortly 
be  expended,  and  having  stated  that  the  revenue  was 
daily  decreasing,  he  had  proposed  that  all  the  existing 
duties  should  be  doubled  on  importations  subsequent  to 
the  first  day  of  January,  1809."  The  net  revenues  accru- 
ing from  customs  during  the  three  years  1809,  1810,  and 
1811,  without  any  increase  of  duties,  had  exceeded  $26,- 
000,000.  If  the  duties  had  been  doubled,  as  Gallatin 
desired,  there  would  have  been  $20,000,000  on  hand,  — 
a  sum  greater  than  that  proposed  to  be  raised  by  internal 
taxes  for  four  years.  Moreover,  he  had  expected  a  re- 
newal of  the  charter  of  the  United-States  bank  "  in  some 
shape,  and  on  a  more  extensive  scale."  He  had  recom- 
mended an  increase  of  its  capital  to  $30,000,000,  on  the 
condition  of  loaning  one-half  of  it  to  the  United  States. 
The  amount  might  have  been  easily  increased  $5,000,000 
more.  With  $20,000,000,  and  loans  secured  for  an  equal 
amount,  "without  any  increase  of  the  stock  of  the  public 
debt  at  market,  internal  taxation  would  have  been  un- 
necessary for  at  least  four  years  of  war,  nor  any  other 
resource  been  wanted  than  an  additional  annual  loan  of 
$5,000,000,  —  a  sum  sufficiently  moderate  to  be  obtained 


1812.]  TAXATION.  247 

from  individuals,  and  on  favorable  terms.  But,  Congress 
having  failed  to  do  these  things,  internal  taxation  had 
become  absolutely  necessary.  Gallatin  proposed  to  raise 
15,000,000  in  this  manner,  — $3,000,000  by  direct,  and 
the  remainder  by  indirect  taxation. 

Gallatin's  letter  was  a  surprise.  The  patient,  cautious, 
long-suffering  financier  had  never  uttered  such  a  sharp- 
toned  message  before.  When  Smith  and  Giles  and  their 
coadjutors  came  out  of  the  Senate,  shortly  afterward,  they 
appeared  to  be  as  astonished  and  dejected,  if  we  believe 
the  ancient  story,  as  were  those  visiting  the  cave  of  Tro- 
phonus  when  they  emerged  into  the  light  of  day.  Yet,  un- 
like the  priests  of  old,  Gallatin  had  not  excited  Congress 
by  terrible  sounds  or  apparitions :  he  had  moved  the  mem- 
bers powerfully  by  telling  them  the  truth. 

The  Committee  of  Ways  and  Means  made  a  report  to 
the  House,  embodying  faithfully  the  views  of  the  secre- 
tary of  the  treasury.  The  necessity  of  providing  a  reve- 
nue "  sufficient,  at  least,  to  defray  the  ordinary  expenses 
of  the  government,  and  to  pay  the  interest  on  the  public 
debt,  including  that  on  new  loans  which  might  be  author- 
ized," was  discussed  without  flinching.  At  the  close  of 
the  report,  the  committee  proposed  a  long  series  of  reso- 
lutions, providing  for  a  large  increase  of  all  duties  on 
merchandise,  tonnage,  a  retention  of  a  portion  of  the 
drawback  on  goods  exported,  a  duty  on  salt,  beside  levy- 
ing internal  taxes  to  the  estimated  amount  of  ^6,575,000, 
including  stamp-duties  on  notes.^ 

The  report  of  the  committee  produced  a  genuine  sensa- 
tion in  the  House.     A  fierce  debate  was  opened,  in  which 

1  Ways  and  Means  Report,  Feb.  17,  1812,  2  Finance,  p.  539. 


248      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1813. 

the  views  of  the  secretary  of  the  treasury  were  vehemently 
denounced.  A  powerful  cabal  had  been  formed  in  Con- . 
gress,  composed  of  Democrats  who  were  bitterly  opposed 
to  Gallatin.  The  leader  was  Gen.  Smith,  a  senator  from 
Maryland,  whose  brother  was  secretary  of  the  navy. 
From  the  beginning,  Gallatin  had  been  opposed  to  the 
secretary's  extravagances.  Indeed,  as  we  have  seen,  some 
of  his  operations  were  colored  with  dishonesty.  The 
cabal  grew  larger  and  stronger,  and  more  jealous  of  Galla- 
tin's power ;  and  they  were  determined,  first  of  all  things, 
to  break  him  down.  Jefferson  had  stood  by  him  for  eight 
years,  and  Madison  relied  on  him  even  more  than  his 
predecessor.  But  Madison  was  not  firm ;  and,  instead  of 
doing  his  utmost  to  uphold  Gallatin  by  crushing  his  ene- 
mies, he  strove  to  preserve  good  terms  with  both  factions 
of  his  party,  and,  in  consequence,  was  fast  bringing  the 
organization  into  contempt.  He  ought  not  to  have  re- 
appointed Smith  secretary  of  the  navy ;  while  Eustis,  the 
secretary  of  war,  was  notoriously  incompetent.  Madison 
did  not  strengthen  himself  as  he  should  in  his  cabinet. 
He  did  not  try  to  sustain  Gallatin  until  assistance  was 
too  late,  —  until  the  faction  opposed  to  the  secretary 
became  strong  enough  to  overthrow  him.  Yet  the  Presi- 
dent had  long  known  that  Gallatin's  enemies  were  un- 
ceasing in  their  efforts  to  drive  him  from  the  cabinet. 
Never  before  had  a  j)olitical  faction  composed  of  so  few 
men  exercised  such  a  potent  influence,  and  with  so  little 
regard  for  the  welfare  of  their  country. 

Even  now,  when  Gallatin  had  shown  the  necessity  of 
immediate  increase  of  taxation,  and  of  unanimous  and 
hearty  co-operation   in   preparing  for  war,  opposition  to 


1812.]  TAXATION.  249 

him  did  not  diminish.  Wright  of  Maryland,  who  be- 
longed to  the  Smith-Giles  faction,  thus  addressed  the 
House  concerning  the  letter  we  have  just  described,  which 
Gallatin  had  sent  to  the  Committee  of  Ways  and  Means:  — 

"  Sir,  — At  the  last  session,  when  the  question  for  re-charter- 
lug  the  odious  British  bank  was  before  us,  we  had  to  encounter 
the  influence  of  the  secretary  of  the  treasury.  .  .  .  Now,  at  this 
session,  he  has  told  us,  that,  if  we  had  a  national  bank,  we 
should  have  no  occasion  to  resort  to  mternal  taxes ;  thereby 
calling  the  American  people  to  review  the  conduct  of  their  rep- 
resentatives in  not  contmuing  that  bank,  and  thereby  to  fix  the 
odium  of  these  odious  taxes  on  the  national  Legislature.  Now 
a  system  of  taxes  is  presented,  truly  odious,  in  my  opinion, 
to  the  people,  to  disgust  them  with  their  representatives,  and 
to  chill  the  war  spirit.  Yet  it  is,  under  treasury  influence,  to 
be  impressed  on  the  committee  of  waj'S  and  means,  and, 
through  them,  on  the  House.  Sir,  is  there  any  thing  of  origi- 
nality in  his  system  ?  No  !  It  is  treading  in  the  muddy  foot- 
steps of  his  official  predecessor,  in  attempting  to  strap  round 
the  necks  of  the  people  this  odious  system  of  taxation  adopted 
by  them,  for  which  they  have  been  condemned  by  the  people,' 
and  dismissed  from  power.  .  .  .  And  now,  sir,  with  the  view 
of  destroying  this  administration,  with  this  sentence  of  a  dis- 
missal of  our  predecessors  in  office  before  our  eyes,  —  a  sen- 
tence not  only  sanctioned,  but  executed,  by  ourselves,  — we  are 
to  be  pressed  into  a  system  known  to  be  odious  in  the  sight  of 
the  people." 

There  was  another  class  who  regarded  Gallatin's  recom- 
mendations for  internal  taxes  with  disgust.  They  were 
his  friends,  who  had  acted  with  him  in  resisting  the  execu- 
tion of  the  laws  for  the  collection  of  a  revenue  in  Peiin- 


250      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1813. 

sylvania  in  1794.  His  old  coUeagae,  William  Findley, 
was  so  deeply  shocked  at  the  re-introduction  of  the  excise, 
that  he  would  not  even  vote  for  printing  his  letter  to  the 
Committee  of  Ways  and  Means,  which  had  been  written  at 
their  request.  They  regarded  his  conduct  as  flagrantly 
inconsistent.  But  surely  the  situation  required  the  adop- 
tion of  a  system  of  taxation  not  less  deep  and  general  than 
the  one  Gallatin  had  recommended. 

Indeed,  the  only  error  in  Gallatin's  letter  was,  he  did 
not  call  for  enough  taxes.  He  began  by  accepting  the 
committee's  estimate,  that  loans  to  the  extent  of  $50,000,- 
000  would  carry  on  a  four-years'  war.  The  war  lasted 
two  years  and  a  half,  and  raised  the  national  debt  from 
145,000,000  to  8123,000,000,  or  at  the  rate  of  more  than 
130,000,000  a  year,  —  nearly  three  times  the  estimate. 

Severe  as  was  Gallatin's  dose,  the  faction  opposed  to 
him  were  obliged  at  last  to  vote  for  the  taxes,  however 
distasteful.  The  other  party  was  at  this  time  co-operating 
with  Gallatin  in  supporting  several  of  his  measures.  The 
resolutions  favoring  the  adoption  of  the  new  system  were 
passed  ;  and  the  Committee  of  Ways  and  Means  were  or- 
dered to  prepare  and  report  bills  for  the  levying  and  col- 
lection of  the  taxes,^  embodied  in  the  resolutions  adopted 
by  the  House.^     Unfortunately,  the  session  was  nearing 

1  Altliough  there  was  an  excise  tax  imposed  on  whiskey,  yet  the  pro- 
duction and  consumption  were  not  checked  thereby.  Said  Mr.  Stewart  of 
Pennsylvania,  during  tlie  debate  in  1824,  "I  very  well  remember,  that,  in 
the  district  of  country  I  have  the  honor  to  represent,  there  was  paid,  during 
the  late  war,  a  heavy  excise  ;  yet  there  was  never  known  a  jieriod  of  such 
prosperity  to  the  manufacturer  of  whiskey.  There  was  twice  as  much  made 
then  as  there  is  now."  —  IS  Cong.,  first  session,  Coikj,  Deb.,  vol.  i.  p.  1502. 

2  Adams's  Life  of  Gallatin,  p.  45i. 


181S.] 


TAXATION.  251 


its  close,  and  not  enough  time  was  left  to  prepare  all  the 
bills.  An  additional  duty  of  one  hundred  per  cent  to  the 
permanent  duties  imposed  by  law  on  imports  was  added, 
and  ten  per  cent  more  on  goods  imported  in  foreign  ves- 
sels, and  an  additional  tonnage  duty  of  a  dollar  and  a 
half  per  ton  on  ships  owned  partly  or  wholly  abroad.^ 
The  other  measures  proposed  went  over  to  the  next  ses- 
sion.2  Instead  of  enacting  them,  Congress  granted  author- 
ity to  the  President  to  borrow  money. 

Gallatin's  enemies  could  truly  say  of  him,  that  the 
system  he  had  proposed  was  essentially  similar  to  the 
system  adopted  by  the  Federal  party  when  in  power,  and 
which  the  other  had  stoutly  opposed.  It  only  remained 
for  him  to  suggest  the  expediency  of  anticipating  the  taxes 
by  issuing  treasury-notes,  to  complete  the  reproduction  of 
the  financial  system  created  by  the  Federalists,  which  only 
a  few  years  before  he  had  severely  condemned.  But  his 
altered  situation  had  caused  a  reversal  of  his  ideas  respect- 
ing the  management  of  the  public  finances.  Gallatin  the 
critic,  free  from  responsibility,  was  a  very  different  person 
from  Gallatin  the  official  head  of  the  treasury,  charged 
with  the  duty  of  getting  the  needed  funds  to  sustain  the 
government. 

1  July  1, 1812.  These  duties  were  to  be  collected  until  one  year  after 
the  conclusion  of  peace  with  Great  Britain,  and,  consequently,  until  Feb. 
17,  1816.  The  Act,  with  its  several  supplements,  —  imposing  an  additional 
duty,  commonly  called  the  "  Mediterranean  Fund,"  of  two  and  one-half 
per  cent  on  all  imported  goods  paying  duties  ad  valorem,  and  a  discrimi- 
nating duty  of  ten  per  cent  on  that  additional  duty,  with  respect  to  all 
goods  imported  in  foreign  vessels,  —  expired  March  3,  1815.  — Dallas's 
Report  on  Tariff  of  Duties  on  Imports,  Feb.  13,  1816,  3  Finance,  p.  85. 

2  Ways  and  Means  Report,  Feb.  15,  1813,  2  Finance,  p.  613. 


252      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1813. 

At  the  next  session,  which  began  in  November,  1812, 
and  closed  the  3d  of  March  the  following  year,  it  was 
supposed  that  all  the  legislation  needed  to  enrich  the 
treasur}'  would  be  enacted.  The  tax-bills  which  had 
been  postponed  from  the  previous  session,  violent  as  they 
were  at  first  thought  to  be,  were  quite  unequal  to  the 
occasion,  and  stronger  measures  were  needed.  But  Gal- 
latin had  ceased  to  have  any  control  over  the  Senate,  and 
the  House  was  becoming  almost  as  difficult  to  manage. 
The  15,000,000  of  revenue,  which  had  been  unexpectedly 
received  from  heavy  British  shipments  immediately  after 
the  revocation  of  the  orders  in  council,  served  to  increase 
the  sluggishness  of  Congress.  Nor  did  the  course  of 
Cheves,  who  was  now  chairman  of  the  Committee  of  Ways 
and  Means,  contribute  to  the  success  of  the  treasury .1 
He  wished  to  force  Congress  to  raise  a  revenue  by  aban- 
doning the  non-importation  system,  which  was  still  main- 
tained as  a  coercive  measure  against  Great  Britain.  But 
Congress  refused  to  grant  relief  in  this  way,  while  that 
body  was  equally  averse  to  touching  the  tax-bills.  So 
the  session  wore  away  without  doing  any  thing  what- 
ever  in    this   direction,  save    to    lay   a    small    duty    on 

1  Eleven  days  after  our  fjovernment  had  declared  war,  and  without 
knowing  its  action,  the  British  Government  revoked  its  orders  in  council, 
which  had  been  the  chief  source  of  grievance  in  America.  As  soon  as  the 
revocation  occurred,  large  quantities  of  merchandise  were  shipped  from 
Great  Britain  on  the  faith  of  tlie  Act  of  Congress  of  March  2,  1811,  which 
promised  a  renewal  of  intercourse  whenever  those  orders  should  be  re- 
voked. Even  after  the  declaration  of  war  became  known,  these  shipments 
continued  protected  by  British  licenses  from  British  cruisers.  The  amount 
of  merchandise  tluis  imported  was  nearly  840,000,000,  and  the  duties  col- 
lected were  about  one-eighth  of  that  sum.  —  Adams's  Life  of  Gallatin, 
p.  472. 


1813.] 


TAXATION.  253 


iron  wire,  —  an  inglorious  termination,  surely,  of  the 
efforts  of  Congress,  in  view  of  the  gloomy  truth  that 
the  country  financially  was  rapidly  sinking  so  low  as 
to  alarm  every  one  having  any  regard  for  its  honor  and 
safety.^ 

The  needs  of  the  treasury  became  so  great,  and  the 
reliance  on  public  credit  grew  so  hazardous,  that  a  special 
session  of  Congress  was  called  to  adopt  relief.  The  foun- 
dation of  a  system  of  internal  revenue  was  now  laid. 
The  objects  selected  for  taxation  were  those  which  the 
experience  acquired  from  the  former  experiment  recom- 
mended as  the  most  fitting.  A  series  of  measures  was 
passed,  the  first  of  which  related  to  the  assessment  and 
collection  of  direct  taxes  and  internal  duties.  The 
amount  which  Congress  expected  to  raise  from  this  source 
was  $;5,000,000.  The  continuance  of  these  taxes  was 
limited  at  first  to  one  year  after  the  termination  of  the 

1  DuriDg  the  war,  numerous  forfeitures  occurred;  but  the  most  interest- 
ing question  growing  out  of  tliem  took  place  when  a  large  number  of 
vessels  were  seized  shortly  after  the  breaking-out  of  the  war.  Those  which 
had  left  the  ports  of  Great  Britain  in  good  faith,  belonging  to  Americans, 
before  the  declaration  of  war  was  known,  and  subsequent  to  the  suspension 
Oi  the  non-intercourse  Act,  were  released,  on  giving  a  bond  to  the  treasury 
for  the  value  of  their  cargoes.  But  the  secretary  was  at  a  loss,  under  these 
peculiar  circumstances,  whether  to  remit  or  exact  the  forfeitures  incurred. 
He  referred  the  matter  to  Congress,  but  expressed  the  opinion,  that,  under 
the  circumstances,  one  half  the  forfeitures  due  to  the  collectors  ought  to  be 
remitted,  and  the  other  half,  or  its  equivalent,  exacted. 

The  subject  furnished  fuel  for  a  hot  debate.  Langdon  Cheves,  chairman 
of  the  Committee  of  Ways  and  Means,  led  the  Federalists  in  a  vigorous 
assault  upon  the  treasury.  Jonathan  Roberts  of  Pennsylvania,  who  was 
also  a  member  of  the  same  committee,  defended  the  views  of  Gallatin.  In 
the  end,  Cheves  triumphed,  and  the  forfeitures  were  entirely  remitted  by 
the  very  close  vote  of  63  to  61. -Adams's  Life  of  Gallatin,  p.  472.  Ways 
and  Means  Report,  Nov.  25,  1812,  2  Finance,  p.  570. 


254      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1813. 

war,  and  they  were  called  the  "war  taxes."     By  subse- 
quent laws  almost  all  the  existing  revenues  were  pledged 
toward   defraying   the   expenses   of  government,   paying 
the  public  debt  (principal  and  interest),  and  creating  an 
adequate  sinking-fund  gradually  to  reduce,  and  eventu- 
ally to  extinguish,  the  public  debt,  until  those  purposes 
should  be  accomplished,  or  until  Congress  should  provide 
and  substitute  by  law,  for  the  same  purposes,  other  duties 
equally  productive.     A  direct  tax  of  $3,000,000  was  laid 
and  apportioned  to  the  States,  respectively,  for  the  year 
1814.     A  duty  of  four  cents  per  pound  was  laid  on  all 
sugar  refined  within  the  country.     An  annual  duty  was 
imposed  on  carriages  for  the  conveyance  of  persons,  which 
was  graduated  from  twenty  dollars  to  one-tenth  of  that 
sum.     The  distillers  of  spirituous  liquors  were  required 
to  pay  duties  on  licenses,  the  amount  of  which  depended 
on  the  capacity  of  the  still,  the  time  of  using  it,  and  the 
materials  consumed.     The  retailers  of  wines,  spirituous 
liquors,  and  merchandise,  were  also   required   to  pay  a 
license,  the  amount  of  which  varied  with  the  place  of 
retailing,  and  the  nature  of  the  thing  sold.     A  duty  was 
laid  on  sales  at  auction,  of  merchandise  and  of  ships  and 
vessels,  at  the  rate  of  one  per  cent  of  the  purchase-money 
of  goods,  and  of  twenty-five  cents  for  every  hundred  dol- 
lars of  the  purchase-money  of  ships  and  vessels.      A  duty 
was  laid  on  the  notes  of  banks  and  bankers,  on  bonds, 
obligations,   or  promissory  notes  discounted  by  banks  or 
bankers,  and   on   foreign   and   inland   bills  of  exchange 
above  fifty  dollars,  and   having  one  or  more  indorsers, 
graduated   by   the    nominal   amount   of  the  instrument. 
Beside  these  direct  and  internal  taxes,  a  duty  of  twenty 


1814.]  TAXATIOX.  255 

cents  per  bushel  was  imposed  on  salt  imported  into  tlic 
United  States.^ 

Large  as  was  the  increase  of  taxes,  the  income  of  the 
government  fell  far  below  its  expenditures.  In  Septem- 
ber, the  year  following,  the  secretary  of  the  treasury 
announced  that  the  direct  tax  had  produced  considerably 
less  than  the  amount  expected,  and  that,  to  provide  for 
the  wants  of  the  government.  Congress  must  consider 
the  expediency  of  increasing  that  tax,  as  well  as  the 
present  internal  duties,  and  also  what  new  objects  of 
taxation  could  most  advantageously  be  subjected  to  the 
burden.  The  government  had  failed  to  borrow  all  the 
money  needed  ;  and  the  secretary  considered  the  necessity 
of  changing  the  plan  of  finance  adopted  at  the  outset  of 
the  war,  and  of  raising  money  by  taxes,  to  bear  a  portion 
of  the  extraordinary  expenditure  which  the  government 
was  now  incurring.  "  This  would  have  a  tendency,"  he 
said,  "  to  insure  public  confidence,  and  preserve  and  con- 
firm public  credit."  ^ 

Eppes,  the  son-in-law  of  Jefferson,  was  chairman  of  the 
Committee  of  Ways  and  Means.  He  was  not  a  brilliant 
man,  and  his  knowledge  of  finance  was  scanty.  His 
committee  adopted  the  views  expressed  by  the  secretary 
of  the  treasury.     Additional  taxation  was  declared  neces- 

1  During  the  debate  on  the  internal  revenue  bill  in  1793,  an  additional 
clause  was  proposed,  preventing  inspectors  from  interfering,  directly  or 
indirectly,  in  elections,  beyond  giving  their  own  votes.  Their  power  was 
feared.  The  amendment,  however,  was  not  adopted,  though  receiving  a 
large  number  of  votes  (Aiin.  of  Congress,  1  Cong.,  p.  1876).  Even  tlie 
strongest  opponent  of  an  internal  revenue  bill  in  1814  was  haunted  with  no 
Buch  fear. 

2  Report  to  Congress,  Sept.  26, 1814. 


256      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1814. 

sary.  In  embodying  this  conclusion  in  a  tax-law,  the 
committee  said  they  had  been  careful  to  put  the  burden 
equally  on  every  portion  of  the  community.  The  report 
recommended  much  heavier  taxation  of  the  manufac- 
turing than  of  the  agricultural  interest,  based  on  the 
following  reasoning :  "  in  Europe  the  price  of  agricul- 
tural products  is  not  materially  affected  by  a  state  of 
war :  the  produce  of  the  earth  is  there  consumed  within 
the  country,  in  peace  and  in  war.  The  situation  of  the 
United  States  is  totally  different.  With  an  extensive  and 
fertile  country,  and  a  small  population  compared  to  the 
extent  of  our  territory,  we  have  annually  a  large  surplus 
to  export  to  foreign  markets  over  and  above  what  is 
necessary  for  consumption.  On  the  export  of  this  sur- 
plus, which  is  cut  off  by  war,  depends,  in  a  great  degree, 
the  ability  of  the  farmer  to  meet  taxes.  While,  however, 
war  depresses  the  agricultural  interest,  it  gives  vigor  to 
various  manufactures.  By  destroying  all  foreign  compe- 
tition, the  war  has  brought  many  of  these  manufactures 
to  a  state  of  perfection,  which  will  secure  their  successful 
prosecution,  even  after  peace  shall  be  restored.  In  times 
of  real  difficulty  and  danger,  we  must  appeal  to  the 
patriotism  of  every  class  of  our  citizens.  These  estab- 
lishments, under  the  fostering  hand  of  the  government, 
have  grown  to  maturity,  and  will  not  hesitate  to  bear, 
with  the  agricultural  interest,  their  portion  of  the  taxes 
necessary  to  maintain  unimpaired  that  character  for 
punctuality  and  good  faith  for  which  the  American  Gov- 
ernment has  heretofore  been  distinguished."  The  com- 
mittee then  recommended  a  heavy  increase  of  all  the 
taxes  previously  laid,  beside  new  ones  on  manufactures, 


1814.]  TAXATION.  257 

furniture,  watches,  and  other  articles.^  Subsequent!}^ 
Dallas,  the  successor  of  Campbell  as  secretary  of  the 
treasury,  supported  these  recommendations.^ 

The  House  accordingly  proceeded  to  consider  the  rec- 
ommendations contained  in  the  report.  The  resolutions 
embraced  therein  covered  a  wide  field,  and  Congress  first 
considered  the  stamp-duty  to  be  paid  by  bankers.  The 
Act  of  the  previous  year  had  provided  that  the  secretary 
of  the  treasury  could  make  an  annual  composition  with 
any  banks  or  companies,  in  lieu  of  the  stamp-duty.  The 
amount  to  be  given  was  one  and  a  half  per  cent  on 
the  amount  of  the  annual  dividend  paid  by  those  institu- 
tions to  their  stockholders.  But  the  Act  did  not  apply 
to  the  banking  operations  of  individuals ;  and  Stephen 
Girard,  and  others  also  who  were  engaged  in  a  private 
banking  business,  were  desirous  of  having  the  law  made 
broad  enough  to  cover  them.  The  defect  was  an  obvious 
one,  and  Congress  did  not  hesitate  to  pass  the  amend- 
ment desired.^ 

The  next  measure  increased  the  duties  on  carriages, 
and  changed  the  mode  of  laying  them.  The  duty  on  no 
object  of  internal  taxation  had  been  collected  with  so 
much  difficulty  as  the  duty  on  carriages,  either  under  the 
old  or  the  existing  system,  between  which  there  was  con- 
siderable resemblance.  It  was  plain  that  the  duty  was 
extremely  unequal.  So  great  was  the  inequality,  that  the 
small  sum  of  two  dollars,  the  lowest  tax,  was  frecjuently 

1  Ways  and  Means  Report,  Oct.  10,  1814,  2  Finance,  p.  854. 

2  Letter  to  Chairman  of  Committee  of  Ways  and  Means,  Oct.  18, 1814, 
2  Finance,  p.  866. 

8  Girard's  Letter  to  Congress,  Oct.  26, 1814,  2  Finance,  p.  869. 


258      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1814. 

paid  on  carriages  of  greater  value  than  those  which  had 
paid  four  or  five  times  that  amount.  This  inequality 
proceeded  from  an  erroneous  principle  of  classification. 
This  was  the  kind  of  springs  used,  and  which  were  rarely 
a  true  criterion  of  their  value.  It  was  clearly  seen,  there- 
fore, that  the  duty  ought  to  be  graduated  by  the  value  of 
the  carriage ;  for  no  classification  founded  on  name  or 
form  could  equalize  the  duty.^  So  the  law  was  changed, 
and  the  rate  of  duty  was  based  on  the  valuation  of  the 
carriage.  Those  which  were  exclusively  employed  in 
husbandry,  or  in  transporting  goods,  were  exempt  from 
the  operation  of  the  law :  indeed,  they  had  been,  under 
all  previous  enactments.  A  duty  on  harnesses  also  was 
added. 

An  attempt  was  made  to  tax  salaries;  but  this  failed, 
the  Committee  of  Ways  and  Means  remarking,  that,  "  in 
the  United  States,  according  to  the  principles  of  our  gov- 
ernment, no  salary  can  be  allowed,  except  as  a  compen- 
sation for  public  service.  A  tax  operates  as  a  deduction 
from  the  salary ;  and  such  a  tax,  as  far  as  respects  the 
officers  of  the  United  States,  would  be  an  admission,  on 
the  part  of  the  legislative  body,  that,  in  fixing  the  sala- 
ries of  their  public  officers,  the  public  interest  had  been 
disregarded,  and  more  than  a  just  compensation  allowed." 
It  had  been  proposed  to  tax  the  income  of  lawyers, 
solicitors,  and  counsellors.  To  this  proposition  the  com- 
mittee replied,  that  to  select  a  particular  class  of  the  com- 
munity, which  already  paid,  in  common  with  others,  a 
tax  on  property  and  on  consumption,  and  impose  on 
its  members  an  income  tax  from  which  every  other  class 
1  Smith's  Letter  to  Secretary  of  Treasury,  Nov.  15, 1814 


1815.]  TAXATION'.  259 

was  exempt,  would  be  a  departure  from  that  system  of 
equal  and  exact  justice  which  ought  to  form  the  basis  of 
legislation  in  a  free  country.  It  was  also  proposed  to  tax 
the  legal  proceedings  of  courts.  "  This  tax,"  said  the 
committee,  "if  confined  to  the  courts  of  the  United 
States,  would  be  unproductive ;  if  extended  to  the  State 
courts,  difficult  in  the  collection.  It  would  fall  princi- 
pally on  the  necessitous  and  unfortunate,  and  produce 
collision  with  the  State  authorities."  These  propositions, 
therefore,  did  not  receive  the  sanction  of  the  committee, 
and  were  not  embodied  in  legislation.^ 

The  direct  tax  was  raised  to  an  annual  sum  of  six 
million  dollars,  and  was  extended  to  the  District  of 
Columbia.  The  duty  on  licenses  to  distillers  of  spiritu- 
ous liquors  was  continued,  and  a  duty  on  spirits  distilled 
was  added.  The  duties  on  sales  at  auction,  and  on 
licenses  to  retail  wines,  spirituous  liquors,  and  foreign 
merchandise,  were  raised.  The  rates  of  postage  were  in- 
creased fifty  per  cent. 

New  duties  were  permanently  laid  on  a  large  variety 
of  manufactures,  and  pledged  for  the  payment  of  the  ex- 
penses of  the  government  and  the  public  indebtedness. 
Congress,  however,  declared,  that,  as  long  as  these  duties 
were  imposed,  the  duties  payable  on  similar  goods  im- 
ported into  the  United  States  should  not  be  discontinued 
nor  diminished.  As  previously  mentioned,  duties  were 
also  laid  on  household  furniture,  and  gold  and  silver 
watches.  Furthermore,  the  secretary  of  the  treasury  was 
authorized  to  anticijpate  the  collection  of  the  duties  laid 
on  spirits  distilled  within  the  country,  and  the  licenses  on 

1  Ways  and  Means  Report,  Dec.  3,  1814,  2  Finance,  p.  873. 


260      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1815. 

the  capacity  of  the  stills,  by  obtaining  a  loan  for  six  mil- 
lion dollars  at  six  per  cent  interest.  He  was  to  apply 
the  money,  however,  for  the  same  purposes  as  the  duties 
had  been  pledged. 

This  series  of  Acts  completed  the  legislation  of  Con- 
gress for  providing  revenues  to  maintain  the  government, 
and  continue  the  war  with  Great  Britain.  The  great 
blunder  of  Congress  had  been  in  delaying  so  long  to 
take  the  steps  which  were  finally  taken.  Had  the  reve- 
nues on  imports  been  increased  at  the  time  Gallatin 
desired,  internal  taxation  might  have  been  avoided  alto- 
gether ;  for  enough  money  would  have  flowed  into  the 
treasury  from  importations  to  discharge  the  ordinary 
obligations  of  the  government,  and  the  funds  required 
for  extraordinary  expenditure  could  have  been  easily  and 
advantageously  borrowed.  But  by  delaying  to  tax,  the 
credit  of  the  government  was  prostrated,  and  then  there 
was  no  escape  from  increased  taxation.  In  truth.  Con- 
gress did  not  awaken  to  the  seriousness  of  the  situation 
until  public  credit  was  ruined,  and  until  no  money  could 
be  borrowed  to  carry  on  the  government.  The  path 
which  Congress  ought  to  have  followed  was  as  clear  to 
Gallatin  and  some  others,  in  the  beginning,  as  it  was  to 
every  one  in  the  end.  By  refusing  to  take  it,  lamentable 
consequences  occurred,  for  which  there  was  no  excuse 
nor  palliation. 


1811.1  THE  CIKCULATLNG  MEDIUM.  261 


CHAPTER  HI. 

THE  GOVERNMENT,  AND  THE  CIRCULATING  MEDIUM. 

The  charter  of  the  first  United-States  bank  expired  in 
1811,  and  the  second  one  began  business  in  February, 
1817.  During  the  interval  the  money  in  circulation  was 
poor  enough.  The  notes  issued  by  the  first  national  bank 
had  been  willingly  received  everywhere,  for  their  redemp- 
tion was  never  questioned.  In  its  vaults  there  always 
lay  more  specie  than  was  needed  to  redeem  every  note.^ 
Never  before  had  the  country  been  favored  with  a  paper 
money  so  nearly  perfect.  Moreover,  by  refusing  to  re- 
ceive the  bills  of  other  banking  institutions  of  questioned 
solvencj^  the  national  bank  exercised  a  healthful  influ- 
ence in  restraining  their  issues. 

When  the  charter  of  the  national  bank  expired,  its 
notes  were  withdrawn,  and  the  notes  of  State  banks  were 
put  into  the  chasm.  These  institutions  rapidly  multi- 
plied, for  great  profits  were  expected  from  the  business. 
During  1811  and  the  two  succeeding  years,  one  hundred 
and  twenty  banks  were  chartered,  and  went  into  opera- 
tion.2  Gov.  Snyder  of  Pennsylvania  had  the  courage  to 
veto  a  bill  authorizing  a  wholesale  creation  of  banks  in 

1  Crawford's  Report  on  Banks  and  the  Currency,  Feb.  24,  1820,  3  Fi- 
nance, p.  494.    It  never  issued  notes  for  a  smaller  sum  than  ten  dollars. 

2  Gouge's  Short  History  of  Paper  Money  and  Banking,  chap.  7. 


262      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1811. 

» 

that  State.^  They  were  scattered  everywhere,  and  added 
nearly  thirty  million  dollars  of  banking-capital  to  the 
amount  previously  existing.  But  there  was  no  addition 
of  real  capital.  The  truth  of  this  statement  will  appear 
when  their  mode  of  raising  capital  is  described.  The 
first  instalment  was  paid ;  and  then  the  banks  were 
organized,  and  discounted  stock-notes  to  meet  the  sub- 
sequent payments.  Of  course,  the  practice  was  soon 
discovered.  Issued  in  this  manner,  the  entire  body  of 
circulating  medium,  except  the  issues  of  the  New-Eng- 
land banks,  began  to  depreciate.  So  far  below  par  did 
their  value  fall,  that  confidence  was  unsettled  in  their 
future  convertibility. 

This  increase  of  bank-notes  occurred  on  the  eve  of  war, 
during  the  earlier  period  of  which,  exports  were  almost 
annihilated,  and  also  the  foreign  and  coasting  trade.  As 
only  a  small  portion  of  this  manufactured  capital  could 
be  loaned  to  mercantile  enterprises,  considerable  sums 
were  invested  in  government  loans.  Finding  a  good 
demand   in   this  quarter,  bank-notes  rapidly  multiplied.''^ 

1  A  writer  who  reviewed  Gov.  Snyder's  veto,  in  a  pamphlet  entitled 
Remarks  on  Paper  Money  and  the  Bank  Paper  of  the  United  States, 
regarded  the  document  "as  a  solemn  protest  —  accompanied  with  clear, 
cogent,  and  convincing  reasons  —  against  a  growing  evil,  which,  if  not 
arrested,  will  destroy  public  confidence,  and  will  consume  the  wealth  of 
the  opulent  with  the  pittance  of  the  poor."  —  p.  30. 

2  Gallatin's  Considerations  on  the  Currency  and  Banking  System,  Writ- 
ings, vol.  iii.  pp.  284-287.  Arrangements  were  made  with  several  banks 
for  accommodations  at  reduced  interest,  provided  the  borrowers  would 
continue  in  circulation  an  amount  in  notes  similar  to  their  loans;  "and  it 
is  a  well  accredited  fact,  that  considerable  premiums  were  allowed  to  pay- 
masters by  the  banks  during  the  war,  on  condition  that  they  would  circu- 
late their  small  notes  in  payment  to  the  troops"  (Curtius  to  secretary  of 
the  treasury,  on  a  National  Currency,  p.  14).    The  same  authority,  writing 


1813.]  THE   CIRCULATING   MEDIUM.  263 

The  eastern  banks,  however,  did  not  subscribe  so  lib- 
erally to  them,  because  the  war  in  that  section  was  un- 
popular ;  but  elsewhere  they  subscribed  very  freely,  and 
made  discounts  to  individuals  who  did  likewise :  while 
others  withdrew  their  deposits,  and  loaned  them  to  the 
government.  These  transactions  greatly  swelled  the  vol- 
ume of  paper  money .^ 

The  indiscretion  of  the  banks  —  chiefly  in  Baltimore, 
Philadelphia,  and  New  York  —  in  thus  expanding  their 
issues  was  inexcusable.  They  knew  that  their  specie 
was  leaving  them,  and  that  vast  quantities  were  going  to 
Great  Britain.     The  New-England  banks  were  liable  to 

in  181fi,  says,  "  Maiij-  of  these  institntions  have  doubled  their  capitals,  and 
most  others  have  made  fifty  per  cent  since  the  declaration  of  war,  exclu- 
sive of  their  speculations  in  the  public  funds  "  (Ibid.,  p.  11). 

1  N.  Am.  Rev.,  vol.  xxxii.  p.  4(5.  Senator  Kent  of  Marj-land  delivered 
a  speech  before  the  United-States  Senate  in  18.34,  in  which  he  stated  some 
interesting  facts  concerning  the  ill  effects  of  this  "  experiment  upon  the 
currency."  He  was  in  Congress  during  the  war,  and  "  well  remembered 
the  ruinous  consequences  "  that  resulted  from  the  experiment.  The  paper 
money  issued  by  the  banks  "  continued  to  depreciate  until  it  became  so 
worthless,  that  the  members  of  Congress  refused  to  receive  it  in  payment 
of  their  per-diem  allowance.  They  were  paid  in  treasury-notes,  and  drafts 
on  northern  banks,  where  specie  payments  had  never  been  discontinued , 
and  those  were  sold  for  a  premium,  which  was  pocketed  by  the  members, 
whilst  their  constituents  were  obliged  to  receive  the  depreciated  paper 
money  in  payment  for  their  hard  earnings.  What  the  people  individually 
lost,  and  what  the  government  lost  during  the  five  years  that  this  first 
experiment  was  going  on,  and  which  embraced  the  whole  period  of  the 
late  war,  I  will  not  attempt  to  estimate.  "We  know  that  there  is  enough 
of  the  trash  of  that  day  now  remaining  in  the  public  treasury,  called  una- 
vailable funds,  which,  with  the  interest  added  to  it,  would  be  sufficient  to 
complete  the  Chesapeake  afid  Ohio  Canal,  the  Baltimore  and  Ohio  Rail- 
road, and  the  Delaware  Breakwater,  —  three  great  and  magnificent  public 
works  intimately  connected  with  the  future  prosperity  of  the  country."  — 
Incidents  in  Lije  of  Jacob  Barker,  p.  99. 


264      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [18t4. 

a  penalty  of  two  per  cent  a  month  for  the  non-pa}'- 
ment  of  their  notes.  This  regulation  produced  a  good 
effect;  for  their  notes  maintained  their  full  value,  even 
when  those  of  other  sections  were  depreciated.  The 
difference  between  the  New-England  prices  of  commodi- 
ties, stocks,  and  foreign  bills  of  exchange,  and  those 
of  Pennsylvania,  was  the  measure  of  the  depreciation 
of  the  currency  of  the  latter ,  and  as  "  our  bank-notes," 
says  Gouge,  writing  from  Philadelphia,  "  were  redeemable 
on  demand,  the  most  profitable  remittance  which  could 
be  made  to  New  England,  in  exchange  for  her  commodi- 
ties, was  specie."  ^ 

The  banks  in  the  Southern  and  Middle  States  having 
been  emptied  of  their  specie,  the  capture  of  Washing- 
ton, in  August,  1814,  caused  them  to  fail.  Those  at  the 
capital  fell  into  the  hands  of  the  enemy,  but  there  was 
scarcely  an}^  thing  in  them.  Already  were  the  banks  on 
the  brink  of  ruin.  Those  at  Baltimore  soon  gave  wa3\ 
The  wave  spread  northward.  The  six  at  Philadelphia 
fell  next,  whereupon  their  several  presidents  gravely  and 
gladly  advertised  that  coin  could  be  no  longer  paid. 
Heavy  importations  of  foreign  goods  into  eastern  ports, 
they  affirmed,  had  drawn  their  specie  thither,  and  the 
drain  liad  been  increased  by  an  unusually  large  trade  in 
British  bills  of  exchange,  which  had  caused  heavy  sums 
to  be  exported  from  the   United  States.^     The  following 

1  Short  History,  p.  254 

2  •'  From  tlie  location  of  the  armies  at  that  period,  a  very  great  propor- 
tion of  tlie  bank  circulation  taken  by  the  government  was  issued  in  New 
Y(jrk,  which  found  its  way  to  the  eastern  banks.  Great  balances  thus 
accrued  in  their  favor  against  the  banks  in  the  city  of  New  York,  which, 
in  their  turn,  became  creditors  of  more  southern  institutions.    The  liqui- 


1814.]  THE   CIRCULATING   MEDIUM.  265 

day  the  New- York  banks  suspended ;  but  those  in  New 
England  withstood  the  pressure.^  One  of  them,  which 
had  speculated  too  largely  in  the  paper  of  the  govern- 
ment, it  was  feared,  would  succumb ;  but,  relieved  by 
rivals,  its  credit  was  saved. 

The  broken  banks,^  though  refusing  to  redeem  their 
notes,  professed  their  desire  and  ability  to  do  so  at  an 
early  day.  The  commercial  world,  however,  was  not 
seriously  shaken ;  for  the  legal  money,  gold  and  silver, 
remained  the  standard  of  value.  That  standard  the 
banks   could   not   change :    indeed,    the   influence   of  its 

dation  of  these  balances  was  necessary  to  all  who  held  them,  and,  of 
course,  demanded.  This  occasioned  a  general  movement  of  specie  to  the 
North,  which  continued  till  every  bank  south  of  New  England  was  ex- 
hausted "  (Letter  to  Secretary  of  Treasury  on  Commerce  and  Currency  of 
United  States,  by  Aristides,  p.  6).  For  full  account  of  specie  movements, 
see  chapter  on  National  Bank,  p.  153. 

1  So  did  the  Bank  of  Nashville  until  August,  1815,  "  the  sturdy  history 
of  whose  directors,  amid  such  general  knavery,  is  not  less  praiseworthy 
than  it  is  remarkable."  — History  of  Banks,  Boston,  18o7,  p.  59. 

2  "  In  1813,  when  gold  and  silver  were  paid  on  demand,  the  currency  of 
the  United  States,  without  including  specie  in  the  vaults,  was  about 
seventy  millions,  of  which  sixty-two  millions  were  in  bank-notes.  Such 
was  its  rapid  increase,  after  the  withdrawing  of  the  salutary  check, — the 
liability  to  pay  gold  and  silver,  —  that  in  1815,  only  two  years  afterwards, 
it  amounted  to  one  hundred  and  ten  millions."  This  is  the  statement  of 
William  B.  Lawrence  (iV.  Am.  Rev.,  April,  1831,  Reprint,  p.  26),  who  fol- 
lowed Crawford's  estimate,  which  was  adopted  by  the  Committee  of  Ways 
and  Means,  as  the  basis  of  their  calculations  (see  Crawford's  Report  on 
the  Bank  of  the  United  States  and  other  Banks,  and  the  Currency,  Feb. 
24,  1820,  16  Cong.,  first  session,  — the  ablest  and  most  elaborate  paper  that 
Crawford  ever  prepared).  Gallatin,  eleven  years  afterward,  made  a  lower 
estimate,  which  is  probably  more  accurate.  He  affirmed  that  the  capital 
of  the  State  banks  existing  in  17!)0  amounted  to  §2,000,000,  and  that  in 
January,  1811,  just  before  the  charter  of  the  United-States  bank  expired, 
there  were  eighty-eight  State  banks,  possessing  a  capital  of  5^'12,G10,000 


^66      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1814. 

fixedness  was  never  more  extensive  or  salutary.  Bills 
of  doubtful  credit  were  compared  with  it,  and  their 
value  was  ascertained.  They  became  a  merchantable 
commodity,  and  were  often  purchased  with  legal  coin. 
They  were  daily  sold  at  a  discount,  which  was  regularly 
announced  in  the  newspapers:  they  were  even  sold  at 
public  auction,  the  purchaser  paying  in  legal  money. 

The  prices  of  merchandise  and  exchange  corresponded 
to  the  depreciation.  Tea,  coffee,  and  every  article  of  com- 
merce, had  only  one  value ;  though  that  was  expressed 
differently  if  payment  were  made  in  bank-notes  instead  of 
coin.  When  the  depreciation  was  twenty  per  cent,  eighty 
dollars  of  silver  would  buy  all  that  could  be  procured  for 
one  hundred  dollars  in  the  depreciated  paper.  If  the 
seller  could  not  at  first  perceive  this,  the  buyer  went  to 
a  broker  with  his  silver,  and  bought  bank-bills  at  the  dis- 
count price.  The  note  which  purported  to  be  one  dollar 
was,  in  fact,  but  eighty  cents;  and  this  was  universally 
known,  so  that  no  deception  was  practised  in  paying  or 
receiving  it. 

Nevertheless,  the  inconvenience  of  such  a  circulating 
medium  was  very  annoying.     Except  in  the  New-England 


(WrUiur/s,  vol.  iii.  p.  286).  From  various  data,  and  guided  partly  by 
analogy  and  partly  by  the  respective  dividends  of  the  banks,  Gallatin 
constructed  the  following  table:  — 


Capital. 

Notes  in 
Circulation. 

Specie. 

Jan.  1,  1811. 

181.5. 
1816. 

Bank  of  the  United  States, 
88  State  banks 

Total 

208  State  banks     .... 
246  State  banks     .... 

$10,000,000 
42,610,601 

$5,400,000 
22,700,000 

$5,800,000 
9,600,000 

$52,610,601 

82,259,.190 
89,822,422 

$28,100,000 

45,500,000 
68,000,000 

$15,400,000 

17,000,000 
19,000,000 

1814.]  THE   CIRCULATING   MEDIUM.  267 

States,  scarcely  two  towns  had  the  same  money.  "In 
the  Southern  and  Western  States  the  depreciation  in  some 
instances  exceeded  even  twenty-five  per  cent.  Not  only 
was  an  accurate  knowledge  of  the  nominal  exchange  of 
the  day  necessary,  before  making  purchases  at  a  di^stant 
place,  but  a  traveller  proceeding  from  the  south  or  west 
towards  the  north  or  east,  if  he  were  so  fortunate  as  to 
have  his  money  received  at  all,  could  not  adjust  his 
reckoning  at  an  inn  till  an  abstruse  calculation  was  made 
of  the  discount  to  which  his  bank-notes  were  to  be  sub- 
jected, or  till  he  had  recourse  to  the  interposition  of  a 
broker."  i 

Great  as  was  the  inconvenience  of  using  such  a  circu- 
lating medium,  no  serious  losses  occurred.  Unfortunately, 
the  secretary  of  the  treasury  believed  that  depreciated 
bills  should  be  received  without  discount,  not  in  payment 
of  loans  only,  but  also  in  payment  of  duties  and  other 
taxes.2  Where  the  government  could  not  get  legal  money, 
it  accepted  discredited  paper.  It  hoisted  the  sign  on 
its  custom-houses,  and  in  the  offices  of  its  tax-gatherers, 
"  Bills  of  broken  banks  received  here."  Is  it  singular  that 
bank-notes  then  multiplied?  The  crier  was  sent  into  the 
cities  to  shout  at  the  corners  of  the  streets,  and  in  the  ears 
of  the  money-changers,  "  Depreciated  paper  borrowed  by 
the  government  at  par  value  ! "  Thenceforth,  a  premium 
was  set  on  depreciation ;  and  cities,  seeking  their  interest, 
vied  with  each  other  in  debasing  their  local  currency. 

1  N.  Am.  Rev.,  vol.  xxxii.  p.  546. 

2  The  action  of  the  secretary  of  the  treasury  in  receiving  hank-notes 
for  loans  and  taxes,  during  the  war  of  1812,  was  severely  condemned  by 
the  Dem.  Rev.,  vol,  ii.  p.  121. 


268      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1814. 

One  ill  effect  of  this  action  of  the  government  was  to 
draw  importations  to  the  port  where  paper  money  pos- 
sessed the  least  value ;  namely,  Baltimore.  The  mercan- 
tile wealth  of  the  country  anchored  at  its  wharves,  and  its 
streets  resounded  with  the  din  of  business  which  right- 
fully belonged  to  other  cities.  "  The  practical  favoritism 
of  the  government,"  says  Ingersoll,  "  transferred  the 
warehouses  of  the  Boston  and  Charleston  merchants  to 
the  wharves  of  Baltimore ;  and  though  every  individual 
could  protect  himself,  and  did  protect  himself,  against  the 
depreciation  of  paper,  yet  there  was  no  redress  against 
the  injustice  of  the  government.  Different  rates  of  duties 
were  virtually  exacted  in  different  parts  of  the  Union. 
Till  treasury-notes  fell,  Boston  paid  the  highest.  Tliis  in 
itself  was  a  wrong.  But,  further,  the  amount  of  business 
in  Boston  was  naturally  diminished ;  for  merchant-vessels 
sailed  for  the  port  where  the  costs  were  least.  Thus  the 
possession  of  solid  capital,  which  should  have  put  Boston 
on  vantage  ground,  operated  so  far  to  its  injury ;  and  the 
very  circumstance  which  should  have  attracted  trade,  ex- 
erted only  the  attraction  of  repulsion." 

It  was  at  this  time  that  Dallas  drew  the  following  picture 
of  the  monetary  affairs  of  the  government :  "  The  recent 
exportations  of  specie  have  considerably  diminished  the 
fund  of  gold  and  silver  coin ;  and  another  considerable 
portion  of  that  fund  has  been  drawn  by  the  timid  and  the 
wary,  from  the  use  of  the  community,  into  the  private 
coffers  of  individuals.  On  the  other  hand,  the  multiplica- 
tion of  banks  in  the  several  States  has  so  increased  the 
quantity  of  paper  currency,  that  it  would  be  difficult  to 
calculate  its  amount,  and  still  more  difficult  to  ascertain 


1814.]  THE   CIRCULATING   MEDIUM.  269 

its  value,  with  reference  to  the  capital  on  which  it  has 
been  issued.  But  the  benefit  of  even  this  paper  currency- 
is  in  a  great  measure  lost ;  as  the  suspension  of  payments 
in  specie,  at  most  of  the  banks,  has  suddenly  broken  the 
chain  of  accommodation  that  previously  extended  the 
credit  and  the  circulation  of  the  notes  which  were  emitted 
in  one  State  into  every  State  in  the  Union.  It  may  in 
general  be  affirmed,  therefore,  that  there  exists  at  this 
time  no  adequate  circulating  medium  common  to  the  citi- 
zens of  the  United  States.  The  moneyed  transactions  of 
private  life  are  at  a  stand,  and  the  fiscal  operations  of  the 
government  labor  with  extreme  inconvenience."  ^  The 
picture  may  be  completed  by  adding  that  the  country 
was  flooded  with  bank-note  counterfeits ;  and  these  heigh- 
tened the  distrust  of  the  people  in  the  entire  mass  of  the 
bank  circulation. 

The  sudden  determination  of  the  banks  to  suspend 
specie  payments,  including  those  which  held  the  public 
deposits,  deprived  the  government  of  the  use  of  its  gold 
and  silver,  without  assent  on  the  part  of  the  treasury.  The 
equally  sudden  determination  of  the  banks  everywhere  to 
refuse  credit  and  circulation  to  the  notes  issued  in  other 
States,  deprived  the  government  of  the  only  means  exist- 
ing for  transferring  its  funds  from  the  places  where  they 
lay  inactive  to  the  places  where  they  were  wanted,  for 
the  payment  of  dividends  on  the  funded  debt,  and  the 
discharge  of  treasury-notes.  That  the  bank-credits  ef 
the  government  would  soon  be  exhausted  in  Boston,  New 
York,  Philadelphia,  and  in  other  places  where  were  the 

1  Dallas'a  Letter  to  Chairman  Com.  of  "Ways  and  Means,  Oct.  17, 1814, 
2  Finance,  p.  866. 


270      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1814. 

principal  loan-offices  for  the  payment  of  the  public  debt, 
was  inevitable.  Nor  could  the  government  meet  its  en- 
gagements in  those  cities,  unless  the  public  creditors  would 
receive  drafts  on  banks  in  other  States,  or  would  subscribe 
the  amount  of  their  claims  to  a  public  loan,  or  would 
accept  payment  in  treasury-notes. 

With  this  unfavorable  prospect  before  him,  Dallas 
applied  to  the  banks  for  assistance.  It  was  not  unrea- 
sonable to  hope,  that,  having  caused  the  existing  embar- 
rassment, they  would  cheerfully  attempt  to  relieve  the 
treasury.  Every  previous  reqrest  for  aid  from  them  had 
been  denied.  Nevertheless,  he  requested  those  which 
had  acted  as  agents  of  the  treasury  to  assist  the  govern- 
ment with  the  means  to  discharge  the  treasury-notes,  and 
to  pay  the  dividends  due  on  the  public  debt  for  a  quarter 
at  the  loan-offices  of  their  respective  States.  A  great  por- 
tion, both  of  the  treasury  notes  and  loans,  belonged  to  the 
banks ,  and  to  that  extent  a  protracted  credit  only  was 
required.  The  balance  of  the  demand  he  expected  would 
be  paid,  if  at  all,  in  the  notes  of  the  respective  banks. 
To  secure  and  satisfy  such  advances,  he  proposed  that  the 
banks  should  be  admitted  on  reasonable  terms'  to  sub- 
scribe to  a  loan  of  three  million  dollars,  or  should  re- 
ceive treasury-notes,  or  bank-notes,  or  drafts  on  banks  in 
other  States.  If  any  bank  preferred  to  accommodate  the 
government  with  a  temporary  loan  bearing  legal  interest, 
it  would  be  accepted.  From  these  sources  Dallas  hoped 
to  get  relief,  but  failed,  as  enough  banks  would  not  co- 
operate to  render  the  plan  successful.^  He  did  succeed, 
however,  in  getting  the  money  needed  to  pay  the  most 
1  Dallaa's  Letter  on  Loans,  Dec.  5, 1814. 


1814.]  THE   CIRCULATING   MEDIUM.  271 

pressing  obligations  by  selling  a  considerable  quantity  of 
government  stock. 

Near  the  close  of  1814  the  treasury  was  so  low,  that 
the  committee  of  claims  seriously  thought  of  recommend- 
ing that  all  claims  whose  validity  should  be  determined 
by  Congress  should  be  paid  in  public  stock  or  treasury- 
notes.  Dallas  happily  checked  their  inchoate  action  by 
suggesting  that  "it  might  be  injurious  to  the  public 
credit."  i 

When  the  banks  suspended  specie  payments  in  the 
summer  of  1814,  the  treasury-notes  were  poorly  fitted  to 
fill  the  place  occupied  by  the  bank  circulation.^  What, 
therefore,  could  the  government  do  for  a  circulating  me- 
dium ?  Of  gold  and  silver,  the  greater  portion  had  been 
exported.  The  notes  of  the  State  banks  were  not  redeem- 
able, and  passed  in  many  places  at  varying  rates  of  dis- 
count. If  the  government  had  restricted  the  jDaj-ment 
of  the  revenue  to  constitutional  money,  gold  and  silver, 
or  to  treasury-notes,  or  to  bank-notes  payable  on  demand 
in  coin,  the  step  would  have  operated  as  a  denial  of  the 
means  for  paying  the  duties  and  other  taxes  at  the  very 
crisis  when  money  was  most  wanted.  Nor  could  any  such 
limitation  be  imposed  with  respect  to  the  loans  required. 
A  subscription  in  coin  could  not  be  expected.  A  subscrip- 
tion in  treasury-notes  could  not  yield  an}^  active  aid  for 
general  purposes;  and,  consequently,  a  subscription  in 
the  local  currencies  of  the  several  States  was  the  chief 
resource  for  procuring  supplies,  and  for  discharging  the 

1  Letter  to  Com.  of  Claims,  Dec.  19,  1814,  2  Finance,  p.  883. 

2  Dallas's  Letter  to  Com.  of  Ways  and  Means,  Dec.  2, 1814,  2  Finance, 
p.  877. 


272      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1815. 

public  engagements.  "  Under  a  sense,  therefore,"  says 
Dallas,  "  of  the  necessity  which  seems  for  a  time  to  have 
reconciled  the  whole  nation  to  the  suspension  of  payments 
in  coin,  the  treasury  continued  to  receive  bank-notes  in 
satisfaction  of  every  public  claim  and  demand ;  and  Con- 
gress, after  a  session  of  six  months,  adjourned  on  the  3d  of 
March,  1815,  without  intimating  any  objection,  or  making 
any  provision  upon  the  subject."  ^  Nevertheless,  the  gov- 
ernment should  have  received  the  bank  circulation  at  its 
true  value,  as  merchants  did  in  the  beginning.  Had  this 
position  been  taken  and  maintained  by  Dallas's  prede- 
cessors, the  embarrassments  of  the  treasury  would  not 
have  been  so  severe.  A  different  path  having  been 
chosen,  Dallas  could  not  do  otherwise  than  walk  therein, 
for  a  time  at  least,  until  he  could  find  a  better  way. 

By  the  rule  he  first  established,  the  treasury  received 
and  paid  in  the  notes  of  banks  circulating  at  par  at  the 
respective  places  of  receiving  and  paying.  For  a  time, 
the  circulation  of  such  notes  was  indicated  by  the  banks 
employed  as  the  depositories  of  the  public  revenue  by 
crediting  them  as  cash  in  the  accounts  of  the  United- 
States  treasurer;  but  after  a  short  period  the  principal 
banks  refused  to  do  this,  except  the  notes  they  had 
respectively  issued.  What  notes  circulated  at  par  could 
then  be  ascertained  only  by  inquiry.  Few  notes,  except 
those  of  the  local  banks,  continued  to  circulate  at  par 
value ;  and  such  as  did  were  received  by  the  banks  for 
safe  keeping,  as  a  special  deposit,  constituting  a  discredited 
fund  on  which  the  treasurer  could  occasionally  draw. 

1  Letter  to  Chairman  of  Com.  on  National  Currency,  March  19,  181^ 
3  Finance,  p.  116. 


1815.]  THE   CIRCULATING   MEDIUM.  273 

The  operation  of  this  measure  was  severe  in  many  of 
the  collection  districts,  particuhuiy  in  the  States  where 
the  banks  which  were  preparing  to  resume  specie  pay- 
ments had  so  reduced  the  issues  of  theii*  paper  as  to 
render  the  quantity  circuhiting  insufficient  for  the  de- 
mand. But  the  secretary  of  the  treasury  could  not  wisely 
change  the  rule.  If  notes  not  circulating  at  par  had 
been  received  in  one  district,  a  similar  practice  must 
have  been  observed  in  every  other.  The  inevitable  con- 
sequence of  such  a  practice  would  have  been  the  payment 
of  taxes  everywhere  in  the  most  depreciated  paper ,  and 
the  notes  thus  received  never  could  have  been  employed 
to  discharge  the  demands  on  the  treasury,  even  at  the 
places  of  receiving  them.  The  revenue  would  have  accu- 
mulated only  to  be  wasted,  while  the  expedient  of  sub- 
stituting treasury-notes  to  meet  the  public  engagements 
would  have  led  to  an  enormous  increase  of  the  national 
debt. 

Another  serious  consequence  followed  the  discredited 
paper  circulation.  The  secretary  of  the  treasury  was 
compelled  to  augment  the  amount  of  the  national  debt, 
both  funded  and  floating,  by  issues  of  treasury-notes,  to 
meet  the  public  engagements  at  places  where  he  could 
not  command  the  local  currency.  Throughout  the  East- 
ern States  the  secretary  failed  to  get  enough  local  currency 
to  meet  the  local  demand.  The  banks  of  those  States, 
fettered  by  their  charters,  could  not  follow  the  example 
of  banks  elsewhere  in  suspending  coin  payments :  con- 
sequently their  issues  of  notes  were  very  limited,  and 
the  circulating  medium  required  was  supplied,  principally 
by  treasury-notes,  and  partly  by  tho   aotes  of  the  banks 


274      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1815. 

of  New  York.  Under  these  circumstances  the  revenue 
in  the  eastern  section  of  the  Union  was  almost  entirely 
collected  in  treasury-notes.  Lesser  difficulties,  springing 
from  similar  causes,  occurred  in  some  of  the  Southern 
States,  where  the  accruing  revenue  was  less  than  the  de- 
mands caused  by  the  arrearages  of  war  and  the  current 
expenditures. 

The  condition  of  the  circulating  medium  required  the 
secretary  of  the  treasury  to  perform  a  very  difficult  task. 
The  amount  of  revenue  collected  varied  much  in  differ- 
ent places ;  and  not  infrequently  it  happened  that  the 
debts  were  greatest  where  the  government  had  the  least 
monej^  to  satisfy  them.  So  far  as  practicable,  warrants 
were  paid  at  the  places  where  services  were  rendered,  or 
supplies  were  furnished.  But  if  the  treasury  possessed 
no  funds  at  such  places,  the  differences  of  exchange 
caused  no  little  difficulty  in  locating  the  payment  of  war- 
rants in  an  equitable,  impartial,  and  satisfactory  manner. 
Gradually  the  difficulty  passed  away,  except  in  New  Eng- 
land, where  it  remained  for  a  long  time  to  vex  the  secre- 
tary of  the  treasury.  It  was  fiscally  impossible  to  pay 
all  the  demands  on  the  treasury  at  one  place ;  and  every 
holder  of  a  warrant  was  desirous  of  receiving  payment 
where  the  medium  was  of  the  highest  current  value. 

The  condition  of  the  circulating  medium  seriously 
affected  the  management  of  the  business  of  the  treasury 
in  another  way.  The  banks  employed  as  depositories 
of  the  public  funds  were  necessarily  increased,  notwith- 
standing the  injurious  consequences  to  the  government. 
As  soon  as  the  differences  in  the  current  value  of  bank- 
notes were  introduced,  and  particularly  when  one  bank 


1815.1  THE   CIRCULATING   MEDIUM.  275 

refused  to  credit  as  cash  a  deposit  of  the  notes  of  another, 
the  secretary  was  obliged,  either  to  take  the  hazard  of 
acciimidating  masses  of  revenue  in  the  hands  of  indi- 
vidual collectors  and  receivers,  or  to  recognize  as  places 
of  deposit  banks  established  in  the  districts  which  were 
not  affected  by  the  course  of  the  exchanges.  The  latter 
measure  was  adopted,  instructions  were  issued  to  the 
collectors  and  receivers  to  act  accordingly,  and  the  num- 
ber of  banks  thus  employed  by  the  government  swelled 
to  ninety-four. 

Not  only  were  the  difficulties  of  the  treasury  depart- 
ment enhanced  by  multiplying  the  places  of  deposit,  but 
there  was  greater  complexity  in  keeping  the  accounts 
arising  from  the  various  kinds  of  notes  in  circulation,  on 
some  of  which  minute  calculations  must  be  made.  It 
was  necessary  to  keep  four  accounts  with  each  bank,  —  an 
account  of  cash,  which  meant,  in  the  absence  of  coin,  the 
local  currency ;  an  account  of  special  deposits  of  bank- 
notes, which  were  notes  issued  by  other  banks  than  the 
depository;  an  account  of  special  deposits  of  treasury- 
notes  bearing  interest ;  and  a  fourth  account  of  deposits 
of  small  treasury-notes  not  bearing  interest. 

Such  were  some  of  the  difficulties  encountered  by  the 
government  from  the  suspension  of  specie  payments  by 
the  banks.  Dallas  made  every  effort  which  his  bold  and 
vigorous  mind  could  suggest  to  relieve  the  treasury  from 
its  embarrassments ;  but  he  was  obliged  to  tell  Congress, 
at  the  close  of  1816,  that  his  successive  attempts  had  not 
been  effectual.  There  was  no  magic  in  a  mere  treasury 
instruction  to  the  collectors  of  the  revenue  which  could, 
by  its  own  virtue,  charm  gold  and  silver  into  circulation. 


216      FINANCIAL  HISTOEY  OF  THE  UNITED  STATES.       [1815. 

The  people  did  not  possess  a  metallic  medium  ;  nor  could 
they  be  expected  to  procure  it,  unaided  by  the  banks. 
They,  too  timid  or  too  interested,  declined  every  overture 
to  co-operate  in  re-instating  the  lawful  money.  Even 
Congress  remained  passive.  The  power  of  coercing  the 
banks  was  limited  to  the  rejection  of  their  notes  in  pay- 
ing taxes,  and  to  the  exclusion  of  their  agency  in  the 
custody  and  distribution  of  the  revenue.  Even  if  more 
power  had  been  exercised,  a  coin  currency  would  not 
have  been  created ;  while  the  people  would  have  suffered, 
and  a  hazard  been  put  on  all  the  money  due  to  the  gov- 
ernment. Until,  therefore,  a  substitute  could  be  pro- 
vided, it  was  useless  and  impolitic  to  insist  on  payment 
of  the  revenues  in  a  medium  which  the  people  did  not 
possess,  and  could  not  procure.^ 

One  mode  of  relieving  the  treasury  somewhat  was  by 
employing  treasury-notes.  Issued  by  the  government, 
and  bearing  interest,  and  receivable  in  payment  of  debts 
and  taxes,  they  were  evidently  more  valuable  than  bank- 
notes. But  bank-machinery  gave  an  impulse  and  direc- 
tion to  its  issues  which  could  not  be  imparted,  by  the 
forms  of  the  treasury  or  any  merely  official  institution, 
to  the  paper  of  the  government.  In  the  operations  of  a 
bank,  too,  the  facilities  of  bank-credits  supplied  the  place, 
in  a  very  important  degree,  of  the  issues  of  notes ;  so  that 
a  bank-loan,  so  Dallas  declared,  of  thirty  million  dollars, 
would  probably  require  no  greater  issue  than  six  million 
dollars  of  notes.  On  the  contrary,  the  sum  raised  by  an 
issue  of  treasury-notes  must  be  actually  sent  in  that  form 
into  the  market,  through  the  various  channels  of  credit 

1  Annual  Treasury  Report,  December,  1816. 


1815.]  THE    CIRCULATING    MEDIUM.  277 

and  demand.  Treasury-notes,  however,  could  partly  sup- 
ply the  place  of  a  circulating  medium ;  and,  so  far  as 
possible,  Dallas  and  Congress  were  desirous  of  thus  em- 
ploying them.^ 

The  State  banks,  after  suspending  specie  payments, 
might  have  furnished  far  more  assistance  than  they  did 
to  tlie  government  and  individuals.  Had  they  given 
credit  and  circulation  to  the  notes  of  each  other  through- 
out the  United  States,  or  had  they  been  willing  to  adopt 
the  fiscal  views  of  Dallas,  a  total  dependence  on  those 
institutions,  however  impolitic  in  the  abstract,  would 
have  been  practically  safe  and  beneficial.  But  by  con- 
tinuing to  limit  their  circulation  to  the  city,  town,  or 
State  where  it  was  issued,  their  notes  totally  failed  to 
fulfil  the  purpose  of  a  circulating  medium ;  and  the 
receipt  of  them  in  payment  of  duties  converted  the 
public  revenue,  which  was  destined  for  general  uses  at 
home  and  abroad,  into  a  local  fund,  which  often  was  not 
wanted  where  it  existed,  and  was  wanted  where  it  could 
not  be  had.  This  difficulty  might  have  been  obviated 
somewhat,  after  a  time,  by  establishing  a  rate  of  exchange 
on  the  transfer  of  the  revenue  from  the  places  of  collec- 
tion and  deposit  to  the  places  of  demand  and  employ- 
ment; but  Congress  did  not  heed  Dallas's  recommenda- 
tion.'^ 

The  reader  may  ask,  Why  did  not  Dallas  compel  debt- 
ors to  pay  the  government  in  coin,  —  the  only  kind  of 
money  recognized  by  the  constitution  ?     Had  he  done  so, 

1  Dallas's  Letters  to  Chairman  of  Com.  of  Ways  and  Means,  Oct.  17, 
1814,  2  Finance,  p.  866,  and  Feb.  20,  1815,  Ibid.,  p.  910. 

2  Dallas's  Letter,  Feb.  20,  1815. 


278      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1815. 

the  Eastern  States  would  not  have  suffered ;  for  their 
circulatmg  medium  would  have  remained,  and  retained 
its  value,  whatever  policy  might  have  been  adopted  by 
the  banks  of  other  states.  But  the  effect  of  such  a 
requirement  in  other  sections  of  the  Union,  unless  their 
local  banks  had  observed  it  in  their  ordinary  business, 
would  have  been  to  deprive  the  people  of  their  only 
means  of  paying  the  public  taxes  and  of  maintaining 
trade.  The  secretarj^,  therefore,  during  the  year  1815, 
acquiesced  in  the  arrangements  then  existing,  though  de- 
termined to  demand  coin  payments  at  the  earliest  practi- 
cable moment. 

Dallas  told  Congress,  very  soon  after  accepting  office, 
that  the  true  way  to  put  the  people  in  a  condition  to  pay 
the  money  prescribed  by  the  constitution  was  to  estab- 
lish a  national  bank.  This,  he  declared,  was  the  only 
effective  remedy  that  could  be  applied.  Beside  accom- 
plishing that  object,  it  would  constitute  a  safe  depository 
for  the  public  treasure,  and  a  constant  auxiliary  to  the 
public  credit.  He  proposed  that  a  national  bank  should 
be  incorporated  for  the  term  of  twenty  years,  with  a  capi- 
tal of  fifty  million  dollars,  two-fifths  of  which  should  be 
subscribed  by  the  government,  and  the  remainder  by  cor- 
porations, companies,  and  individuals.  He  further  pro- 
posed that  the  concern  should  loan  thirty  million  dollars 
to  the  United  States  at  six  per  cent  interest,  at  times  and 
in  sums  mutually  convenient.^  A  bill  constituting  it  was 
immediately  introduced  into  the  House.  When  recom- 
mitted to  the  committee  who  reported  it,  the  question 
was  warmly  discussed  of  the  expediency  of  issuing  forty- 

1  Dallas's  Letter,  Oct.  17, 1814, 


1815.]  THE   CIRCULATING    MEDIUM.  279 

four  million  dollars  of  treasury-notes  which  should  be  re- 
ceivable in  subscriptions  to  the  bank.  Dallas's  opinion 
was  asked.  He  believed  that  it  would  be  extremely  diffi- 
cult, if  not  impracticable,  to  get  so  many  treasury-notes 
into  circulation  with  or  without  depreciation.  This  opin- 
ion was  founded  on  several  reasons :  1.  If  the  subscrip- 
tions to  the  bank  became  an  object  of  speculation,  the 
treasury-notes  would  probably  be  purchased  at  the  treas- 
ury, and  loan  offices,  and  never  pass  into  circulation  at 
all ;  2.  Whatever  portion  of  the  treasury-notes  might 
pass  into  circulation  would  be  speedily  withdrawn  by  the 
speculators  in  the  subscription  to  the  bank,  after  steps 
had  been  taken  to  depreciate  their  value.  The  only  dif- 
ference between  the  notes  which  had  been  issued,  and 
those  proposed,  was  in  their  subscribable  quality ;  but 
this  was  not  believed  to  be  great  enough  to  secure  the 
circulation  of  so  great  an  amount.^ 

The  State  banks  were  opposed  to  the  creation  of  a 
national  bank.  The  interests  of  the  two  were  diametri- 
cally opposed.  A  memorial  was  sent  to  both  Houses 
from  five  of  the  banks  in  the  State  of  New  York,  con- 
taining their  reasons  for  opposing  the  creation  of  such  an 
institution.  The  memorialists  declared  that  the  present 
time  was  most  inauspicious  for  creating  a  national  bank, 
and  that,  so  far  from  aiding  the  fiscal  operations  of  the 
government,  it  would,  in  their  opinion,  tend  to  embarrass, 
even  more  than  the  adverse  circumstances  of  the  times 
had  already  done,  all  public  as  well  as  private  credit. 
The  memorialists  "  firmly "  believed  that  the  proposed 
capital  was  too  large,  that  the  six  million  dollars  of  specie 

1  Dallas's  Letter  to  Lowndes,  Nov.  27,  1814,  2  Finance,  p.  872. 


280      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1815, 

needed  could  not  be  obtained  by  any  inducements  which 
could  be  held  out,  and  that  a  less  sum  would  not  afford 
proper  security  to  the  public  ;  that,  even  if  six  millions 
could  be  procured,  the  payment  of  the  notes  in  specie 
could  only  be  continued  for  a  short  period,  under  the 
present  circumstances  of  the  country ;  that  if,  by  the 
exercise  of  the  power  proposed  to  be  lodged  in  the  Presi- 
dent of  the  United  States,  the  notes  were  not  paid  in 
specie,  they  would  infallibly  depreciate  ;  that,  if  they  did, 
no  existing  bank  could  possibly  take  them  without  the 
greatest  injury  to  their  stockholders ;  and  that,  if  the 
notes  were  not  taken  by  the  banks  throughout  the  coun- 
try, they  would  not  serve  as  a  general  medium  of  circula- 
tion. 

There  was  another  class  who  opposed  the  chartering  of 
the  bank, — the  speculators  in  exchange,  —  whose  influence 
was  very  powerful.  The  amount  of  exchanges  effected 
annually  at  this  time  was  computed  at  sixty  million  dol- 
lars. The  dealers  in  exchange  were  reaping  a  rich  har- 
vest from  the  depreciated  money  in  circulation.  It  was 
not  surprising,  therefore,  to  find  them  opposing  an  insti- 
tution, which,  if  successful,  would  relieve  the  community 
of  the  enormous  tax  paid  to  them,  and  utterly  destroy 
their  business.^ 

Notwithstanding  the  opposition  to  the  measure,  a  char- 
ter was  granted  in  January,  1815 ;  but  President  Madison 
vetoed  it,  not  for  lack  of  constitutionality,  —  a  point 
which  he  regarded  as  settled  by  the  courts,  —  but  for 
other  reasons  that  may  be  briefly  given.  The  amount  of 
the  government  stock  which  might  be  subscribed  would 
1  Clarke  and  Hall's  Leg.  and  Doc.  Hist,  of  Bank  of  U.  S.,  p.  743. 


1815.]  THE   CIRCULATING   MEDIUM.  281 

not,  he  believed,  be  sufficient  to  produce  in  favor  of  the 
public  credit  any  considerable  or  lasting  increase  of  its 
market-price.  On  the  other  hand,  the  stock  might  be 
occasionally  depressed  by  the  bank  itself,  if  it  should 
carry  into  market  the  proportion  of  capital  it  was  per- 
mitted to  hold,  consisting  of  public  stock,  in  order  to 
procure  specie,  which  it  might  desire  to  obtain,  even  at 
the  sacrifice  of  a  portion  of  its  capital.  Subscribers  were 
also  to  be  allowed  to  pay  for  tlieir  subscriptions  in  part 
in  treasury-notes.  But  the  President  declared  in  his  veto 
that  the  actual  issue  of  these  notes  nearly  equalled  at 
present,  and  would  soon  exceed,  the  amount  to  be  sub- 
scribed to  the  bank.  The  direct  effect  of  this  operation 
would  be  simply  to  convert  fifteen  million  dollars  of 
treasury-notes  into  the  same  amount  of  six-per-cent  stock, 
with  the  collateral  effect  of  promoting  an  additional  de- 
mand for  treasury-notes  beyond  what  might  otherwise  be 
negotiable.  Furthermore,  the  bank,  if  constituted  as  pro- 
posed, could  not  be  relied  on,  during  the  war,  to  provide 
a  circulating  medium,  nor  to  furnish  loans,  nor  anticipa- 
tions of  the  revenue.^ 

Though  the  first  charter  failed  through  defects  which 
the  President  would  not  sanction,  another  was  passed  the 
next  session  which  he  signed  without  hesitation.  In  the 
mean  time,  Dallas  sought  to  induce  the  State  banks  to 
resume  specie  pa3nTients,  but  without  success.  In  New 
England  the  desire  of  the  banks  to  return  to  them  was 
very  strong :  indeed,  they  professed  to  pay  gold  and  silver. 
For  a  considerable  period  they  had  issued  only  a  very  few 
notes  of  their  own.     The  wants  of  the  people  were  sup- 

1  Communicated  to  the  Seuate,  Jan.  30,  1815,  2  Finance,  p.  891. 


282      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1815. 

plied  chiefly  with  treasury-notes.  The  revenue  there  was 
ahnost  wholly  collected  in  them ;  and  prior  to  purchas- 
ing them  at  a  considerable  discount,^  importers  were 
placed  at  a  very  serious  disadvantage  with  importers  else- 
where. In  other  sections  of  the  country,  however,  the 
banks  were  less  inclined  to  resume  specie  payments, 
although  each  bank  professed  to  be,  if  the  others  were 
ready. 

Dallas's  proposition  to  them  was  to  begin  the  payment 
of  coin  in  small  sums  on  the  1st  of  October,  1816;  but 
they  deemed  such  a  resumption  of  specie  payments  inexpe- 
dient. They  desired  to  defer  the  time  for  resuming  until 
the  1st  of  July  the  following  year.  He  strongly  depre- 
cated the  delay.  In  his  report  to  the  House  on  the  state 
of  the  finances,  made  only  a  few  days  before  resigning 
office,  he  set  forth  in  the  strongest  light  many  reasons 
why  the  State  banks  should  resume  the  next  January, 
when  the  national  bank  was  to  begin  pajang  in  coin,  or 
on  the  20th  of  tlie  following  month,  when  coin  payments 
were  to  be  exacted  by  the  government  for  duties  and 
other  taxes.2 

The  banks  possessed  considerable  specie ;  for  early  in 
1814  3  they  wrote  to  Dallas,  suggesting  "  the  propriety  of 
his  recommending  to  Congress  "  the  enactment  of  a  law 
making  foreign  gold  coins  a  legal  tender.  Unless  this 
quality  were  given  to  them,  heavy  losses  were  appre- 
hended.    So  the  former  laws,  making  them  a  legal  tender, 

1  Dallas's  Letter  to  Chairman  of  Com.  on  National  Currency,  Nov.  27, 
1814. 

2  Sept.  30, 1816,  3  Finance,  p.  129. 
8  March  4,  2  Finance,  p.  837. 


1816,]  THE   CIRCULATING   MEDIUM.  283 

were  revived,  and  continued  in  part  until  1827.^  To 
prevent  coin  from  going  abroad,  Dallas  was  in  favor  of 
prohibiting  its  exportation  for  a  limited  time;  but  Con- 
gress maintained  a  different  view. 

Before  concluding  this  chapter,  the  fact  may  be  added 
that  some  persons  who  had  received  treasury-notes  from 
the  government  in  payment  of  contracts  at  a  period 
when  they  were  worth  less  than  par,  afterward  sought 
to  recover  the  difference ;  but  Congress  objected  strongly 
to  paying  it.  A  committee  of  that  body  declared  they 
"  were  treated  by  the  parties  as  the  common  currency  of 
the  country,  and  a  substitution  for  the  current  coin  to 
such  only  as  were  willing  to  accept  them  at  par.  They 
were  what  they  purported  to  be,  and  what  the  law  declared 
they  should  be,  —  available  to  the  holder  to  the  full  extent 
of  their  nominal  amount ;  if  no  other  way,  by  converting 
tliem  into  certificates  of  funded  debt."  Moreover,  it 
might  be  justly  maintained,  that,  as  creditors  expected  to 
be  paid  in  these  notes,  the  prices  of  things  purchased  were 
advanced  enough  to  cover  the  depreciation.  Nevertheless, 
in  several  cases,  Congress  did  vote  to  pay  claims  of  this 
nature  .2 

1  Act,  April  29,  1816,  14  Cong.,  first  session,  chap.  139.  Act,  March  3, 
1819,  15  Cong.,  second  session,  chap.  97.  Act,  March  3,  1821,  10  Cong., 
second  session,  chap.  53.  Act,  March  3, 1823,  17  Cong.,  second  session, 
chap.  50. 

^  Report  No.  5,  Dec.  22,  183G,  24  Cong.,  second  session. 


284      FINA^SCIAL  HISTORY  OF  THE  UNITED  STATES.       [1813. 


CHAPTER   IV. 

EFFECT  OF  THE  WAR  ON  MANUFACTURES. 

For  several  years  before  the  war  numerous  outrages 
were  inflicted  by  the  subjects  of  Great  Britain  on  American 
commerce,  the  growth  of  which  had  excited  their  jealousy. 
The  English  ministry  shared  the  same  unhealthy  senti- 
ment. To  drive  our  commerce  from  the  seas  was  the 
chief  end  of  Canning's  unfeeling,  selfish  policy.  It  was 
thoroughly  English,  but  it  was  successful.  The  steps  of 
retaliation  to  which  we  were  slowly  and  hesitatingly  led, 
eventually  had  the  eifect  which  Canning  so  ardently  de- 
su-ed;  for  when  the  war  was  over,  and  the  smoke  had 
cleared  from  the  ocean,  American  ships  could  no  longer 
be  seen  sailing  peacefully  on  its  great  bosom,  nor  did 
they  ever  return  in  former  numbers.  It  was  like  the 
blow  that  Nebuchadnezzar  struck  at  the  heart  of  Tyrian 
commerce,  —  costly,  indeed,  to  Great  Britain,  but  very 
effective ;  and  those  who  do  not  look  back  to  the  events 
of  that  day,  to  ascertain  the  prime  cause  of  the  decay  of 
American  shipping,  build  their  arguments  upon  a  wrong 
foundation. 

If  the  English  ministry  succeeded  in  accomplishhig 
their  design,  they  did  not  intend  to  aid  in  cultivating  a 
fairer  tree,  whose  branches  in  due  time  should  cast  their 
shadow  over  Great  Britain  itself.    It  was,  however,  during 


1812.]        EFFECT   OF   THE    WAR    ON   MANUFACTURES.         285 

this  troubled  period,  that  American  manufactures  were 
securely  rooted.  The  methods  wliich  Great  Britain  em- 
ployed to  expel  American  commerce  from  the  seas,  were 
far  more  effectual  barriers  to  the  introduction  of  foreis-n 

O 

manufactures  than  any  set  up  by  the  American  govern- 
ment. Just  in  proportion  as  the  embargo  laws,  and  other 
kindred  measures,  were  effective  in  destroying  American 
shipping,  did  American  manufactures  strike  deep  root,  and 
rankly  grow. 

Until  this  period  home  manufactures  had  not  been  very 
important,  nor  had  they  offered  serious  competition  to 
foreigners.  Something  had  been  done  in  manufacturing 
cotton  goods,  a  few  woollens  had  been  made,  some  iron, 
and  several  other  industries  had  been  begun ;  but  all  were 
in  a  nascent  state.  Many  manufactures  were  the  fruit  of 
hand-labor. 

The  embargo  laws  changed  all  this.  When  the  supply 
from  foreign  countries  was  cut  off,  the  dependence  and 
helplessness  of  the  people  became  manifest.  What  was 
to  be  done  for  blankets  to  clothe  the  army,  and  supply 
the  Indians  ?  The  secretary  of  Avar  proposed  that  the 
non-intercourse  law  should  be  suspended  in  regard  to 
them,  so  that  they  could  be  imported.^  It  was  during  this 
period,  says  Dallas,  "that  the  importance  of  domestic 
manufactures  became  conspicuous  to  the  nation,  and  made 
a  lasting  impression  on  the  mind  of  every  statesman  and 
of  every  patriot.  The  weapons  and  munitions  of  war,  the 
necessaries  of  clothing,  and  the  comforts  of  living,  were 
at  first  but  scantily  provided.  The  American  market 
seemed  for  a  while  to  be  converted  into  a  scene  of  gam- 

1  Am.  Labor  versus  British  Free  Trade,  Phil.,  1S55,  p.  4. 


286      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1813. 

bling  and  extortion ;  and  it  was  not  the  least  of  the  evils 
generated  by  the  unequal  state  of  the  supply  and  demand, 
that  an  illicit  traffic  with  the  enemy,  by  land  and  by  water, 
was  corruptly  and  systematically  prosecuted  from  the 
commencement  to  the  termination  of  hostilities."  ^ 

Nevertheless,  the  American  people  were  at  first  very 
slow  in  starting  new  manufacturing  enterprises.  For 
several  years  previous  to  the  war  the  conduct  of  the  gov- 
ernment had  been  very  weak  and  vacillating.  There 
seemed  to  be  a  lack  of  governing  power.  Truly  the 
government  existed  in  form,  but  had  clearly  manifested 
great  weakness.  The  country  had  seen  a  small  cabal, 
having  the  confidence  of  none  outside  themselves,  con- 
trol legislation,  and  dictate  appointments.  The  Presi- 
dent had  acted  like  a  helpless  ship  with  disabled  rudder. 
It  was  distressing  to  witness  the  scene.  Canning  looked 
on,  and  smiled.  Had  our  government  been  strong,  he 
never  would  have  been  permitted  to  insult  it  for  the  long 
period  he  did,  without  at  least  a  mighty  cry,  and  deter- 
mined effort  to  resent  the  injury.      This  state  of  things 

1  Report  on  Tariff  of  Duties  on  Imports,  Feb.  13,  1816,  3  Finance,  p.  85. 
"  The  amount  of  loss  and  i^ositive  suffering  which  resulted  from  this 
unfortunate  state  of  affairs  (war  of  1812)  can  be  but  faintly  conceived  by 
the  genei-ation  now  on  the  stage.  Historj^  indeed,  gives  us  some  idea  of 
it ;  but  one  must  tall?  with  aged  men  and  women  who  passed  through  that 
gloomy  and  distressing  scene,  if  he  would  know  how  wretched  may  be  the 
condition  of  a  people  engaged  in  conflict  with  a  powerful  foe,  j'ct  without 
the  means  of  producing  clothing  for  their  armies,  or  of  producing  within 
themselves  the  essential  and  varied  material  of  war"  (Bigelow's  Tariff 
Policy,  pp.  01,  62).  Edward  Everett  said  in  a  speech  delivered  in  New 
York  in  1831,  that  competent  judges  had  estimated  the  enhanced  price  of 
clothing,  during  the  war  of  1812,  at  a  larger  sum  than  all  the  duties  paid 
on  cloth  since  that  time  (Ibid.,  p.  62,  note). 


1812.]        EFFECT   OF    THE   WAR   ON    MANUFACTURES.         287 

was  any  thing  but  favorable  to  American  manufac- 
turing. Hearing  a  gentleman,  remarked  a  writer  at  that 
time,  complain  for  the  want  of  wire,  I  said,  "  You  have 
capital  enough :  why  do  you  want  it  ?  Establish  a  man- 
ufactory, and  make  it  for  yourself."  He  replied,  "1 
would  have  done  so  a  considerable  time  since,  and  I  am 
willing  to  do  so  now ;  but  the  measures  of  government 
are  so  uncertain,  and  no  disposition  exists  in  Congress 
to  defend  such  establishments, .  that  I  rather  clioose  to 
suffer  present  evils  than  attempt  to  remedy  them  b}^  an 
exertion  that  might  be  attended  with  more  serious  con- 
sequences." He  added,  "This  is  a  general  rule  among 
the  people.  They  make  no  calculation,  as  the  British 
manufacturer  does,  on  the  protection  of  the  govern- 
ment, and  therefore  attempt  nothing  that  they  are 
not  morally  certain  will  immediately  be  so  reproduc- 
tive as  to  enable  them  fairly  to  compete  with  the  old 
establishments  of  Europe."  ^  The  prejudice  which  had 
been  so  general,  respecting  the  inferiority  of  American 
manufactures,  was  decreasing,  although  enough  exii^ted 
to  embarrass  somewhat  the  home  producer  in  selling 
his  product.^ 

Notwithstanding  the  attitude  of  the  government,  indi- 
viduals did  engage  in  new  enterprises.  Having  once 
begun  in  earnest,  the  fever  rapidly  spread.  Various 
manufactures  were  successfully  produced.^  A  great  im- 
provement was  made  in  woollen  cloth,  and  in  many  kinds 
of  tools.  Said  Niles,  writing  near  the  close  of  1812, 
"The  progress  of  manufactures  is  astonishing.  The 
world  has  no  parallel  for  the  population  of   the  United 

1  2  Niles,  p.  8.  '^  1  Ibid.,  p.  402.  3  ibiJ.,  pp.  390,  40G. 


288      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1812. 

States,  nor  can  it  furnish  any  for  the  increase  of  our  fab- 
rications." 1 

Cobbett,  on  the  other  side  of  the  Atlantic,  watching 
our  progress,  exclaims,  "  See  what  has  been,  only  by  the 
short  operation  of  the  embargo  and  non-intercourse  act, 
done  in  America !  To  such  an  extent  have  the  cloth 
and  the  cotton  manufactories  grown  up  there,  that  I 
have  been  credibly  informed,  that,  during  last  year,  the 
cards  for  carding  wool  and  cotton,  shipped  for  America 
from  the  port  of  Liverpool,  have  exceeded  in  amount  the 
cloths  shipped  at  the  same  port  from  the  counties  of 
Somerset  and  Gloucester.  .  .  .  We  have  here  before  us 
the  seeds  of  a  great  event,  —  nothing  less  than  the  com- 
plete and  absolute  independence  of  America  upon  Eng- 
lish manufactures."  ^ 

In  1810  there  were  ten  thousand  bales  of  cotton  manu- 
factured in  the  United  States.  Five  years  afterward, 
ninety  thousand  bales  were  used,  which  were  manufac- 
tured into  eighty-one  million  yards  of  cloth,  costing  an 
average  of  thirty  cents  per  yard.  These  facts  reveal  at 
once  the  rapid  growth  of  this  branch  of  manufacture. 
The  iron  fabricated  was  sufficient,  within  three  thousand 
tons,  to  supply  the  whole  consumption  of  the  country. 
Woollen  manufactures,  though  not  quite  so  far  advanced, 
were  prosecuted  with  equal  vigor.  The  home  supply  of 
white  and  red  lead,  and  shot,  was  sufficient.  Earthen 
wares  were  made  in  immense  quantities,  "and  with  an 
elegance  beginning  to  rival  the  workmanship  of  Europe." 

1  3  Niles,  p.  189.  See  6  Ibid.,  p.  173,  for  list  of  manufactures  made  at 
that  time. 

2  1  Ibid.,  p.  164. 


1814.]       EFFECT    OF   THE   "WAPw   ON    MANUFACTURES.        289 

In  the  manufacture  of  glass  it  was  affirmed  that  our  work- 
men had  rivalled  those  of  England.  Except  some  fiue 
articles  not  often  wanted,  we  were  supplied  altogether  by 
home  manufacturers.^ 

Those  who  consumed  these  products  were  obliged  to 
pay  dearly  for  them.  Importers  and  merchants  having 
stocks  on  hand  when  the  embargo  laws  went  into  effect, 
did  not  hesitate  to  ask  enormous  prices  of  buyers.  Manu- 
facturers followed  the  example.  There  was  no  little  com- 
plaining about  these  things.  Even  Niles,  whose  devotion 
to  the  cause  of  American  manufactures  has  been  rarely 
parallelled  and  never  surpassed,  writes  to  them  in  the 
''  Register,"  ^  "  Your  profits  at  present  are  exceedingly 
great.  Your  works  are  more  productive  than  the  mines 
of  Mexico."  But  he  especially  warns  them  against  dete- 
riorating the  quality  of  their  products :  "  I  have  feared 
that  your  eagerness  to  make  money  was  a  little  like  the 
conduct  of  the  farmer,  who,  having  a  goose  that  laid  a 
golden  egg  each  day,  would  have  grasped  the  whole  at 
once  by  killing  the  goose,  by  which  he  lost  all.  From 
personal  observation  and  general  remark,  it  appears  that 
the  character  of  many  of  your  goods  is  depreciating, 
though  others  have  and  deserve  the  highest  price.  Be 
content,  then,"  he  advises  them,  "  with  a  present  business 
'better  than  coining.'  Get  as  much  as  you  can  for  your 
goods,  but  let  them  be  of  the  best  quality ;  then  you 
ma}'  command  a  preference  over  foreign  manufactures. 
And   if,  with    this   advantage,  and   the    cost    of  freight, 

1  Report  of  Com.  on  Manuf.,  Feb.  13,  1816,  9  Niles,  p.  U7.  Todd's 
Speech,  February,  1824,  18  Cong.,  first  session. 

2  Vol.  vi.  p.  217. 


290      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1814. 

charges,  and  duties  on  goods  imported,  you  cannot  meet 
your  great  rival,  you  ought  to  quit  the  business.  If  j^ou 
deserve  the  encouragement,  the  double  duties  may  be 
continued,  some  time  after  peace  (come  when  it  will),  for 
your  protection ;  but  they  will  not  be  exacted  of  the  peo- 
ple merely  for  your  profit,  nor  is  it  right  they  should 
be." 

During  the  year  1813  the  price  of  cotton  advanced, 
and  that  of  twist  diminished ;  and  the  profits  of  the  cot- 
ton manufacturer  greatly  declined.  The  manufacturers 
of  woollen  cloths  continued  to  realize  large  profit  when 
their  business  was  managed  with  econom3\  But  their 
time  of  trial  soon  came,  and  the  prices  of  their  fabrics 
rapidly  fell.  A  writer  who  was  describing  these  things, 
but  friendly  to  the  manufacturers,  says,  "  Have  not  their 
prices  been  exorbitant  ?  and,  instead  of  a  moderate  profit 
of  one  to  two  dollars  per  yard,  have  they  not  made  from 
four  to  eight  dollars?  There  are  good  reasons  for  sup- 
posing so."  ^ 

Doubtless  the  manufacturers  thought,  that,  as  their 
future  was  uncertain,  they  would  improve  the  present, 
and  make  all  they  could  before  the  evil  time  came.  Any- 
how, their  large  profits  created  no  little  dissatisfaction ; 
and  when,  in  1816,  they  sought  to  have  their  interests 
protected  by  legislation,  they  then  learned  what  the  peo- 
ple thought  of  their  conduct.  Nothing  made  the  fires 
of  opposition  to  them  burn  so  brightly  as  the  recollection 
of  the    high   prices  they  had   charged   for    their   goods.^ 

1  8  Niles,  p.  234. 

2  "  Foreign  cloths  were  sold  in  1811,  before  the  war,  at  eight,  nine,  and 
ten  dollars  per  yard.    Merino  washed  wool  was  then  about  seventy-five 


1815.]        EFFECT   OF   THE   WAR   OX   MANUFACTURES.        "201 

They  could  indeed  reply,  We  did  simply  like  others  who 
had  control  of  the  market.  Did  not  the  merchants  set 
the  example  in  selling  their  merchandise?  This  answer 
did  not  wholly  satisfy  the  people.^  They  could  not  easily 
forget,  or  cease  to  grumble,  about  the  prices  they  had  been 
obliged  to  pay  during  the  gloomy  period  of  war  and  non- 
intercourse  with  Great  Britain. 

Thus,  in  consequence  of  interrupting  the  foreign  trade 
of  the  United  States  by  embargo  and  non-intercourse  laws, 
and  by  war,  a  great  and  salutary  stimulus  was  given  to- 

cents  per  pound.  A  hundred  and  fifty  thousand  pounds  of  imported 
merino  wool  were  sold  in  the  course  of  that  year,  by  Messrs.  "Warder  & 
Son  of  Philadelphia,  to  Messrs.  Dupont  of  Wilmington,  and  othei-s,  for 
from  seventy  to  eighty  cents.  On  the  general  establishment  of  the  woollen 
manufactories  in  the  close  of  1813,  merino  wool  was  sold  at  two  dollars 
and  a  half  to  three  dollars  per  pound,  as  appears  by  the  Philadelphia  price 
current ;  which  also  shows,  that,  on  the  28th  of  March,  1814,  the  price  was 
from  three  to  four  dollars,  at  which  it  continued  stationary  for  the  remain- 
der of  the  year.  The  highest  price  of  American  suijerfine  broadcloth,  at 
that  period,  averaged  from  twelve  to  fourteen  dollars.  Foreign  cloth  was 
generally  sold  at  a  higher  rate,  and,  but  for  the  supplies  from  the  Ameri- 
can manufactories,  would  probably  hare  been  sold  for  twenty  dollars. 
Thus,  while  the  farmer  (who  advanced  the  raw  material  from  four  to  five 
hundred  per  cent)  and  the  importer  (who  raised  his  prices  from  fifty  to  two 
hundred  per  cent  on  the  various  articles  he  had  for  sale)  accuse  the  manu- 
facturer of  extortion,  the  latter  did  not  advance  his  fabrics  more  than  fifty 
per  cent  on  the  prices  current  before  the  war,  notwithstanding  the  ex- 
travagant rise  in  the  price  of  the  raw  material,  and  likewise  in  wages, 
owing  to  the  extraordinary  demand  for  workmen,  and  notwithstanding 
the  enormous  expense  of  the  manufacturing  establishments,  and  the  ad- 
vance in  the  price  of  almost  every  article  of  food  and  dress."  — 17  Niles, 
p.  88. 

1  Mr.  Gold,  a  member  of  the  House,  remarked  during  the  discussion  of 
the  tariff-bill  in  April,  1816,  "  It  is  further  objected  that  our  manufacturers 
will  extort  extravagant  prices;  and  the  prices  during  the  last  year  are  re- 
ferred to  in  support  of  the  objection.  Is  this  charge  against  manufacturers 
just?    Does  not  every  member  of  this  committee  know  that  the  charge 


292      FINANCIAL  HISTOKY  OF  THE  UNITED  STATES-      [1815. 

ward  establishing  manufactures  on  our  own  soil.  What 
progress  had  been  made,  viewed  in  English  eyes,  may  be 
learned  from  a  parliamentary  report  setting  forth  the 
effects  of  the  orders  in  council :  "  It  clearly  appears  that 
those  manufactures  have  been  greatly  promoted  by  the 
interruption  of  intercourse  with  this  country,  and  that, 
unless  that  intercourse  be  speedily  restored,  the  United 
States  will  be  able  to  manufacture  for  their  own  consump- 
tion." 1  The  more  sanguine  at  home  saw  in  the  near  future 
the  realization  of  the  fear  which  now  darkly  overcast  the 
prospects  of  the  English  manufacturer.  The  voice  of  the 
prophet  was  heard  in  many  places  prophesying  the  early 
release  of  the  people  from  dependence  on  British  manu- 
facturers for  supplies  of  clothing,  iron  and  steel  wares, 
and  other  things.  The  prophecies  were  to  be  fulfilled, 
but  not  in  the  way  and  time  so  confidently  prophesied. 
Not  until  a  gigantic  struggle  had  been  waged,  in  which 
millions  of  money  were  lost,  and  every  artifice  was  ex- 
hausted, did  the  foreign  manufacturer  retire  from  the 
field.      Seven   years   sufficed   to  win   the   political   inde- 

applies  equally  against  all  classes  during  the  late  war?  Did  not  the 
merchant  who  had  cloths  on  hand  profit  equally  by  the  times  ?  Did  he 
not  impose  a  hundred  per  cent  profit  on  his  peace  importation  ?  Was  not 
the  settled  order  of  things  unhinged  by  the  war,  and  did  not  all  classes 
exact  the  most  extravagant  prices  ?  If  the  manufacture  of  cottons  were  a 
mystery  confined  to  a  few,  there  might  be  foundation  for  the  objection  ; 
but  the  fact  is,  the  manufacture  is  simple,  machine-makers  greatly  multi- 
plied, and  the  manufacture  is  now  actually  spread  over  more  than  half 
of  the  United  States.  It  began  in  the  East,  has  spread  to  the  West,  and 
has  now  actually  passed  the  mountains.  Instead  of  concert  to  raise  prices, 
competition  and  the  spirit  of  understanding  prevail  to  such  an  extent,  that 
sales  are  often  made  without  profit."  —  .iujiais,  14  Cong.,  first  session, 
p.  1325. 

1  4  Niles,  p.  105. 


1S1.-.]        EFFECT   OF   THE    WAR   ON   MANUFACTURES.        293 

peatleuce  of  the  United  States ;  but  nearly  a  century 
must  pass  before  their  industrial  independence  could  be 
secured. 

Before  the  introduction  of  the  restrictive  system,  the 
duties  on  imports  had  been  collected  without  much  ex- 
pense or  loss ;  nor  had  many  frauds  been  perpetrated  on 
the  government.  Their  successful  collection,  however,  so 
Dallas  affirmed,  "depended  more  upon  the  integrity  of 
the  commercial  community  than  upon  the  rigor  of  the 
laws,  or  an  expensive  vigilance  at  the  custom-house."  But 
when  the  duties  on  imports  were  doubled,  and  the  prices 
of  foreign  merchandise  suddenly  rose  to  a  high  figure,  the 
spirit  of  illicit  commerce  was  kindled,  and  rapidly  spread. 
More  energetic  measures  became  necessary  to  protect  the 
fair  trader,  and  to  secure  the  revenue.  Previously  the 
average  annual  expense  of  collection  had  been  about  four 
per  cent,  excluding  the  fees  paid  by  individuals,  which 
were  estimated  at  one  per  cent  more.  While  the  war 
raged,  the  revenues  declined ;  but  the  expense  of  collection 
(lid  not  decline  in  proportion.  The  losses  from  smug- 
gling, practised  on  the  frontier,  were  enormous ;  and  the 
laws  were  totally  inadequate  to  suppress  it.  Soon  after 
Dallas  entered  the  treasury  department,  he  suggested  addi- 
tional legislation,  which  proved  a  more  effective  barrier 
to  the  illegal  introduction  of  goods  into  the  country.^ 

1  Dallas's  Report  on  Rev.  Laws,  Dec.  7,  1814,  2  Finance,  p.  881.  Tariff 
of  Duties  on  Imports,  Feb.  13,  1816,  3  Ibid.,  p.  85.  Act,  March  3,  1815, 
13  Cong.,  third  session,  chap.  94. 


294      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1813. 


CHAPTER  V. 

ADMINISTKATION    OF   THE    TREASUEY,    FROM    GALLATIN 
TO  CRAWFORD. 

When  Gallatin  went  abroad  to  negotiate  a  treaty,  the 
business  of  the  treasury  was  intrusted  to  Mr.  Jones,  the 
secretary  of  the  navy  ;  the  Presfdent  confidently  expect- 
ing, that,  in  due  time,  Gallatin  would  return,  and  resume 
the  duties  of  his  office.  Negotiations  proceeded  slowly ; 
and  Jones  acted  as  secretary  of  the  treasury  from  May, 
1813,  until  January  the  following  year.  His  fitness  for 
the  post  may  be  illustrated  by  the  following  incident : 
Soon  after  undertaking  the  duties  of  the  treasury  depart- 
ment, he  made  a  report  regarding  the  duties  on  prize 
goods,  in  which  he  overruled  the  opinion  of  Gallatin, 
Hamilton,  and  Adam  Smith,  on  the  same  subject.  He 
quoted  a  singular  authority  to  sustain  him,  an  entirely 
new  light  in  the  financial  world,  —  Hudibras.  The  treas- 
ury had  always  maintained  the  position  that  the  duties 
on  imports  were  paid  by  consumers ;  but  Mr.  Jones  de- 
clared that  "the  maxim  derives  more  weight  from  the 
felicity  of  argument  and  commanding  character  of  the 
great  author  of  the  '  Wealth  of  Nations '  than  from  the  uni- 
versality of  the  principle.  It  is  undoubtedly  true  in  the 
abstract ;  but  my  experience  as  a  merchant  has  taught 


1813.]  ADMINISTRATION   OF   THE   TREASURY,  295 

me  to  know  the  practical  value  of  a  maxim  derived  from 
an  author  of  a  lighter  cast,  — 

•' '  What  is  the  worth  of  any  thing 

But  so  niueh  money  as  'twill  bring  ? '  " 

The  unpretending  prose  of  former  secretaries  of  the 
treasury  had  ill  prepared  the  country  for  lyrical  economy ; 
and  Congress  could  not  help  laughing,  notwithstanding 
the  gravity  of  the  situation.  Though  his  incompetency 
was  known  in  the  beginning,  and  every  report  furnished 
fresh  evidence  of  it,  he  was  kept  at  the  head  of  the  treas- 
ury office  for  more  than  nine  months  during  a  very  criti- 
cal period  of  the  war. 

Jones  made  two  reports  to  Congress,  —  one  at  the  open- 
ing of  the  special  session  in  June,  1813,  and  the  other 
six  months  afterward.  In  the  former  report  he  briefly 
.explained  the  efforts  of  the  treasury  department  to  bor- 
row money ;  estimated  the  probable  needs  of  the  gov- 
ernment, and  what  revenues  might  be  expected  from 
imports;  and  added  a  few  very  feeble  recommendations 
about  issuing  treasury-notes,  and  the  laying  of  internal 
taxes.  These,  he  declared,  were  necessary  for  obtaining 
loans,  and  especially  on  reasonable  terms.  Although 
he  showed,  as  he  thought,  the  necessity  for  making  "a 
speedy  and  effectual  provision  "  for  the  public  service, 
yet,  as  "  the  mode  and  the  extent  to  which  this  provision 
should  be  carried  had  been  previously  suggested  from 
that  department  to  Congress,  and  had  received  the  con- 
sideration of  that  body,"  this  most  important  matter  was 
glibly  passed  over  without  further  comment,  or  a  single 
recommendation. 


296      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1813. 

The  annual  report  submitted  to  Congress  in  December, 
1813,  was  like  the  first.  Of  the  estimated  expenditure 
of  $45,350,000,  Jones  proposed  that  $29,350,000  should 
be  raised  by  loans,  and  the  remainder  by  taxation.  After 
giving  an  estimate  of  the  probable  revenue,  he  was  bold 
enough  to  remark,  "  It  will  rest  with  Congress  to  decide 
whether  it  is  necessary  that  new  and  additional  revenues 
should  now  be  established."  The  reader  of  the  foregoing 
chapters  relating  to  the  war,  will  perceive  without  much 
difficulty,  we  imagine,  the  necessity  for  wider  and  deeper 
taxation  long  before  the  time  of  making  this  report ;  and 
he  will  wonder  why  the  head  of  the  treasury  did  not 
comprehend  the  situation  of  the  government.  A  treas- 
ury nearly  empty,  and  loans  obtained  only  at  a  heavy 
discount,  —  these  patent  facts  ought  to  have  impressed 
Mr.  Jones  with  the  clearest  conviction  of  the  need  oi 
increasing  taxation  speedily,  and  to  have  aroused  him  to 
giving  forth  no  uncertain  sound  to  Congress.  The  pov- 
erty of  his  recommendations  painfully  showed  the  poverty 
of  his  mind,  and  at  a  time,  too,  when  a  strong  and  cour- 
ageous spirit  was  needed  to  direct  the  finances  of  the 
government. 

The  position  of  Gallatin  was  one  of  the  reasons  for 
keeping  Jones  at  the  head  of  the  treasury.  Had  Gallatin 
resigned  before  going  abroad,  the  President  would  have 
put  the  treasury  department  into  stronger  hands  than 
those  of  the  secretary  of  the  navy.  When  Gallatin  found 
that  a  long  period  niust  pass  before  making  peace,  and 
that  he  could  not  be  confirmed  in  his  present  office  unless 
he  resigned  the  other,  his  resignation  was  sent,  and  a-c- 
cepted  by  the  President.     He  had  long  been  thinking  of 


1814.]  ADMINISTIIATIOX    OF   THE   TREASURY.  297 

Alexander  J.  Dallas,  to  whom  he  was  strongly  attached, 
and  whose  abilities  lie  appreciated ,  but  his  confirmation 
would  have  been  impossible  at  that  time,  had  the  Presi- 
dent appointed  him.  Both  the  Pennsylvania  senators 
were  opposed  to  Dallas.  They  contemptuously  declared 
they  would  not  vote  to  place  a  mere  Philadelphia  lawyer, 
who  had  taken  the  side  of  the  Federalists  before  the  war, 
in  the  treasury.  The  office  was  offered  to  Langdon 
Cheves,  speaker  of  the  House ;  but  he  declined  it.  In 
February,  1814,  Pinkney  having  resigned  the  office  of 
attorne3^-general,  Dallas  was  offered  the  choice  of  that 
or  the  treasuryship ;  but  he  declined  both.  His  appoint- 
ment, therefore,  was  delayed  several  months. 

In  the  mean  time,  George  W.  Campbell,  a  senator  from 
Tennessee,  was  offered  the  position,  and  he  accepted  it. 
He  had  previously  served  in  the  House  as  chairman  of 
the.  Committee  of  Ways  and  Means,  and  had  thus  acquired 
some  knowledge  of  national  finance.  On  the  26tli  of 
September  he  sent  a  report  on  the  state  of  the  finances  to 
the  House ,  and  this  document  proved  very  clearly  that 
he  was  not  the  man  for  the  emergency.  Jones  was  too 
ignorant,  and  Campbell  too  weak,  to  grasp  boldly  ques- 
tions of  finance.  Like  timid  mariners,  they  kept  near 
the  shore,  when  safety  required  that  they  should  venture 
forth  into  deep  water.  Campbell  faintly  suggested  an 
increase  of  taxation ;  but  the  report  contained  no  strong 
recommendations,  such  as  the  time  imperatively  de- 
manded. Notwithstanding  the  numerous  and  grave  con- 
sequences from  suspending  specie  payments,  all  that 
Campbell  could  say  was,  that  this  act  "  by  many  of  the 
most  considerable  banks   in   the    United   States,  and   of 


298      FINANCIAL  HISTOP.Y  OP  THE  UNITED  STATES.       [1814. 

those  most  important  in  the  money  operations  of  the 
treasury,  has  produced,  and  will  continue  to  cause,  diffi- 
culties and  embarrassments  in  those  operations.  The  cir- 
culating medium  of  the  country,  which  has  consisted 
principally  of  bank-notes,  is  placed  upon  a  new  and  un- 
certain footing ;  and  those  difficulties  and  embarrassments 
will  extend,  in  a  greater  or  less  degree,  into  the  pecuniary 
operations  of  the  citizens  in  general.-  The  powers  of  Con- 
gress, so  far  as  they  extend,  will  be  required  to  be  exerted 
in  providing  a  remedy  for  these  evils,  and  in  placing,  if 
practicable,  the  currency  of  the  country  on  a  more  uni- 
form, certain,  and  stable  footing."  These  empty  remarks 
on  a  question  so  vitally  important  at  that  time  to  the 
government  and  to  the  people,  are  painful  proof  of  Camp- 
bell's timidity,  and  unfitness  to  administer  the  finances. 

During  his  brief  stay  in  the  treasury  office,  he  did  not 
become  its  master.  To  the  chief  clerk  of  the  treasury 
department  was  intrusted  very  largely  the  negotiation  of 
loans;  and,  after  a  short  attempt  to  conduct  the  busi- 
ness of  the  office,  it  was  necessary  to  relieve  Campbell  by 
appointing  Samuel  H.  Smith  acting  secretary.  Thus  the 
period  of  inefficient  management  under  Jones  was  pro- 
longed during  Campbell's  administration.  There  was  no 
improvement ;  but,  rather,  the  situation  grew  worse.  He 
resigned  the  28th  of  September,  two  days  after  sending 
his  report  to  the  House. 

"  Tell  Dr.  Madison,"  said  Senator  Lacock  of  Pennsyl- 
vania to  the  President's  private  secretary,  "that  we  are 
now  willing  to  submit  to  his  Philadelphia  lawyer  for  head 
of  the  treasury.  The  public  patient  is  so  very  sick,  that 
we  must  swallow  any  thing  the  doctor  prescribes,  how- 


1816  J  ADMINISTRATION    OF    THE   TKEASURV.  299 

ever  nauseous  the  bolus.""  ^  "  His  intrepidity  and  firm- 
ness," says  Ingersoll,  ''  gave  fresh  impulse  to  the  war  for 
the  few  montlis  that  it  lasted  after  his  coming,  —  from 
October,  1814,  till  Fel)ruary,  1815,  —  and  rescued  the 
treasury  from  the  disgraceful  inanition  it  had  fallen  to 
during  the  prior  twenty-eight  months  of  hostilities. 
Arms,  revenues,  national  power  and  resource,  were  just 
elevated  to  the  proper  war-standard,  when  it  ended  — 
never  till  then." 

Dallas  had  previously  served  the  government  in  a  legal 
capacity  at  Philadelphia,  and  had  been  active  in  politics, 
though  not  always  in  perfect  accord  with  the  members  of 
his  party.  "  Perhaps  newspaper  abuse,  as  he  was  an 
active  and  very  able  partisan,  was  the  chief  means  of  his 
notoriety."  He  had  never  acquired  any  special  knowl- 
edge of  finance,  and  was  profuse  in  his  own  expenditures. 
His  vigorous  measures  surprised  and  disconcerted  many 
in  his  own  party.  Macon,  chairman  of  the  Committee  of 
Ways  and  Means,  wished  to  know  if  his  experience  in 
public  affairs,  and  that  of  others  who  had  long  served  in 
Congress,  was  to  be  set  aside  by  a  mere  Philadelphia  law- 
yer, whose  powdered  hair,  old-fashioned  but  ostentatious 
dress,  and  graceful  manners,  were  regarded  as  faults, 
rather  than  merits,  in  many  observing  eyes.  He  did  not 
have  that  reverence  for  Congress  shown  by  Gallatin,  who 
had  been  a  member  of  that  body  previous  to  his  becom- 
ing secretary  of  the  treasury.  The  occasion,  also,  was 
favorable  for  making  urgent  recommendations.  The  sack 
of  the  capitol  by  the  enemy,  joined  to  a  long  series   of 

1  Dallas  was  confirmed  Oct.  G,  1814,  and  was  succeeded  by  "Williaui  H. 

Crawford  Oct.  22,  1816. 


300      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1816. 

unfortunate  events,  emboldened  him  to  advocate  power- 
ful measures  without  fear  of  encountering  much  opposi- 
tion. Increased  taxation,  and  a  national  bank,  were  the 
principal  measures  which  he  constantly  forced  on  the 
attention  of  Congress.  He  enjoyed  the  friendship  of 
such  men  as  Stephen  Girard,  David  Parish,  and  John 
Jacob  Astor ;  and  it  was  doubtless  through  their  advice 
that  he  laid  down  with  so  much  confidence  the  track  on 
which  he  desired  Congress  to  move. 

Though  short,  his  administration  had  been  eminently 
successful.  When  he  left  the  treasury,  the  day  for  resum- 
ing specie  payments  was  very  near,i  —  an  object  for  which- 
he  had  persistently  and  effectually  labored.  A  national 
bank  had  been  chartered,  which  in  due  time  aided  the 
government  in  many  ways.  Its  credit  had  been  revived, 
and  steps  taken  for  reducing  the  public  indebtedness. 
His  vsuccessful  and  brilliant  management  of  the  finances 
is  in  striking  contrast  with  the  painful  and  humiliating 
inefficiency  shown  by  his  two  immediate  predecessors.^ 

1  Feb.  20,  1817.      2  ingersoll's  Events  of  War  of  1812,  p.  252  et  seq 


BOOK  III. 

FROM  THE  CLOSE  OF  THE   WAR  IN   I8I0,  TO  1860. 


CHAPTER  I. 

PAYMENT  OF  THE  FUNDED  DEBT. 

The  reimbursement  of  the  debt  was  continued,  not- 
withstanding the  war  with  Great  Britain.  In  1812 
$2,135,000  were  paid,  but  for  several  succeeding  years 
only  $1,570,000  were  annually  needed.  The  commis- 
sioners of  the  sinking-fund,  after  paying  the  interest  on 
the  debt,  were  required  to  apply  the  residue  of  the  annual 
appropriation  of  $8,000,000  to  the  purchase  of  stocks,  if 
their  price  fell  below  par.  Gallatin  feared,  that,  in  conse- 
quence of  this  legal  requirement,  there  would  be  greater 
difficulty  in  obtaining  loans  than  if  no  such  requirement 
existed.^  The  dreaded  event  did  not  happen :  conse- 
quently the  secretary  was  free  to  apply  the  larger  portion 
of  the  money  borrowed  toward  paying  other  indebted- 
ness. Nearly  $3,000,000  of  the  old  six-per-cent  and  de- 
ferred stocks  were  exchanged  for  new  stock,  under  a  law 
that  was  approved  July  G,  1812.  Several  small  purchases 
were  made  at  different  times ;  and  the  amount  remaining 
unpaid  at  the  end  of  September,  1815,  was  $39,135,484.96. 
In  the  mean  time  a  new  debt  had  been  contracted,  of 
large  proportions.  The  amount  funded  at  the  date  last 
mentioned  was  $63,144,972.50:  the  floating  debt  was  $17,- 

1  Report  of  Com.  of  Ways  and  Means,  Jan.  20,  1812,  2  Finance,  p.  523. 

303 


304      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1815. 

355,101,  which,  except  iil,150,000  of  temporary  loans, 
consisted  of  treasury-notes.  Thus  the  total  debt  con- 
tracted since  the  beginning  of  the  war  was  $80,500,- 
073.50.1  On  the  1st  of  October,  1816,  fourteen  kinds  of 
stock,  bearing  seven  different  rates  of  interest,  were  held 
by  the  owners  of  134,000,000  of  the  debt.2  The  funded 
debt  at  this  time  stood  thus :  — 

Old  funded  debt $37,494,267.01 

New  funded  debt 71,201,551.28 

Temporary  loan 50,000.00 

$108,745,818,29  3 

When  the  treasury-notes  were  first  issued,  it  was  sup- 
posed they  would  be  paid  within  the  time  designated. 
But  they  were  not ;  and  the  amount  remaining  unpaid 
grew  larger  until  the  20th  of  February,  1815.  At  that 
date  there  were  issued,  or  ordered,  $18,452,800.*  These 
were  a  charge  on  the  sinking-fund,  and,  while  they  re- 
mained so,  were  a  serious  burden.  With  a  charge  of 
more  than  twice  the  amount  of  the  fund  thrown  upon  it, 
beside  other  charges  in  the  way  of  interest  and  payments 
on  the  new  loans,  the  gravity  of  the  situation  is  apparent. 
Dallas  was  desirous  of  emaiicipating  the  sinking-fund 
from  the  treasury-note  debt.  This  could  be  done,  either 
by  paying  them  from  the  current  revenues,  or  by  funding 

1  Elliot's  Funding-System,  p.  6.35. 

'^  Lowndes's  Report  on  the  Public  Debt,  Jan.  14,  1817,  3  Finance,  p.  165. 

'■^  Another  item  of  public  debt  was  the  Mississippi  stock,  which  was 
created  when  the  "  Yazoo  claims,"  so  called,  were  settled,  in  August,  1816. 
The  amount  of  this  stock  was  .?4,282,036.92.  It  bore  no  interest,  however, 
and  was  reimbursable  from  the  proceeds  of  public  lands  in  the  territory. 
See  Dallas's  Report,  Sept.  20,  1816. 

4  Elliot,  p.  621. 


1817.]  PAYMENT    OF   THE   FUNDED    DEBT.  305 

them.  He  proposed,  therefore,  that  provision  should  be 
made  for  paying  or  funding  these  notes  in  order  to 
relieve  the  sinking-fund  of  that  charge.  He  also  pro- 
posed that  the  sinking-fund  should  be  applied,  first,  to  the 
interest  and  reimbursement  of  the  old  six-per-cent  stock : 
and,  secondly,  to  the  payment  of  the  principal  and  inter- 
est of  the  temporary  loans  obtained  under  the  Act  of 
March,  1812;  and  then  to  the  payment  of  the  interest  ac- 
cruing on  the  stock  debt  created  since  the  war.  Finally, 
he  proposed  that  the  annual  surplus  of  the  sinking-fund, 
after  satisfying  these  ends,  should  be  applied  to  the  pur- 
chase of  the  stock  created  since  the  war,  and  that  the 
interest  on  the  stock  thus  purchased  should  be  added, 
from  time  to  time,  to  that  appropriation,  for  the  purpose 
of  making  new  purchases.^  Congress  was  willing  to  fund 
the  notes,  but  went  no  farther  that  session  toward  crys- 
tallizing the  views  of  Dallas  into  legal  form.^ 

The  treasury-notes  were  rapidly  absorbed  for  subscrip- 
tions to  the  debt,  taxes,  duties,  •  and  in  other  ways.  At 
the  close  of  1817,  only  '$635,963  were  outstanding:^  136,- 
133,794  had  been  issued  since  1812. 

The  heavy  addition  to  the  public  debt  required  an  en- 
largement of  the  sinking-fund.  Dallas's  recommendation 
of  an  increase  of  -12,000,000,  though  not  at  first  heeded 
by  Congress,  caused  no  injury  to  the  public  interests, 
because  it  was  essential  to  discharge  all  the  floating 
indebtedness  before  preparing  to  reduce  the  funded  debt. 
Notwithstanding  the  increase  of  revenues,  the  expenses  of 

1  Letter  to  Com.  of  Ways  and  Means,  Feb.  24,  1815,  2  Finance,  p.  916. 

2  Act,  March  3,  1815,  13  Cong.,  third  session,  chap.  87. 
8  Elliot,  p.  711. 


$06      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1817. 

the  government  continued  heavy ;  and  the  mass  of  float- 
ing obligations,  including  the  treasury-notes,  could  not  be 
discharged  for  several  months  after  the  war  closed.  In 
1817  the  floating  debt  was  decreased  to  such  a  small 
figure,  that  the  secretary  of  the  treasury  could  proceed 
toward  discharging  the  funded  indebtedness. 

Early  in  1817  ^  the  funding-measures  were  repealed ; 
and  Congress  enacted,  that  from  the  proceeds  of  duties  on 
merchandise  imported,  and  on  the  tonnage  of  vessels,  and 
from  internal  duties,  and  from  the  sales  of  Western  lands, 
$10,000,000  should  be  annually  appropriated  to  the  sink- 
ing-fund, and  be  applied  by  the  commissioners  thereof  to 
the  payment  of  the  interest,  and  the  reimbursement  or 
purchase,  of  the  public  debt.  As  the  revenues  for  the 
year  1817  were  very  large,  $9,000,000  in  addition  were 
appropriated  to  the  same  purpose ;  and  the  secretary  of 
the  treasury  was  authorized  to  pay  the  sinking-fund 
commissioners  $4,000,000  more,  if  lie  should  deem  it 
expedient  to  do  so.  Any  future  annual  surplus  exceed- 
ing $2,000,000  was  appropriated  in  the  same  manner. 
The  Act  further  provided,  that,  whenever  there  should  be 
a  surplus  in  the  sinking-fund  beyond  the  amount  of  inter- 
est and  principal  due  and  payable  during  any  year,  the 
commissioners  were  authorized,  with  the  approval  of  the 
President,  to  purchase  the  debt  at  the  market-price,  pro- 
vided it  did  not  exceed  the  following  rates :  for  the  three- 
per-cent  stocks,  not  over  sixty-five  per  cent ;  for  the 
six-per-cent  stocks,  not  exceeding  par ;  and,  for  the  seven- 
per-cent  stocks,  no  higher  rate,  in  proportion,  than  for 
the  six'per-cent  ones.     Another  change  was  made  in  the 

I  Act,  March  3, 14  Cong.,  second  session,  chap.  87. 


1817.]  PAYMENT   OF   THE   FUNDED   DEBT.  307 

former  funding  Act,  respecting  the  purchase  of  certifi- 
cates of  indebtedness.  These  were  to  be  cancelled  and 
destroyed  as  soon  as  purchased,  and  no  interest  was  to  be 
considered  as  accruing  on  them.  With  no  addition  to  the 
debt,  it  would  be  discharged  in  fourteen  years  if  the  law 
were  executed. 

Crawford  recommended  Congress  to  grant  the  sink- 
ing-fund commissioners  authority  to  buy  the  public  stocks 
at  those  rates  which,  in  their  judgment,  would  be  for  the 
interest  of  the  nation,  rather  than  to  suffer  the  funds  that 
could  not  be  applied  in  reducing  the  debt  to  accumulate. 
At  the  rates  fixed  by  Congress,  none  could  be  purchased ; 
and  only  those  portions  could  be  redeemed  which  became 
due.  Crawford  showed  the  probable  saving  of  such  a 
measure.  On  the  other  hand,  the  interest  that  would  be 
paid,  if  continuing  until  all  the  stocks  matured,  would 
constitute  a  large  sum.  The  wisdom  of  adopting  Craw- 
ford's recommendation  seemed  apparent.  The  commis- 
sioners, he  remarked,  need  not  be  required  to  purchase 
unless  they  saw  fit :  consequently  the  enactment  of  such 
a  measure  would  not  greatly  raise  the  price  of  stocks. 
He  added,  that,  should  such  an  authority  be  granted  to 
the  commissioners  of  the  sinking-fund,  it  was  probable 
that  the  different  species  of  stock  would  advance  in  price 
above  their  present  current  value ,  but  as  the  authority 
would  be  permissive,  not  imposing  the  obligation  to  pur- 
chase, the  surplus  of  the  sinking-fund  could  be  more 
beneficially  employed  in  purchasing  the  public  debt,  so 
Crawford  thought,  than  by  remaining  idle  in  the  treasury 
until  the  year  1825.  If  that  surplus  could  be  invested 
early  in  each  year,  at  the  present  prices  of  the  different 


308      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1824. 

species  of  stock,  it  would  produce  a  saving  to  the  nation 
of  not  less  than  14,000,000  between  the  first  days  of 
January,  1820  and  1825,  at  which  latter  date  the  first 
war-loans  of  1812  could  be  discharged.  But  Congress 
declined  to  invest  the  sinking-fund  commissioners  with 
the  needed  authority .^ 

Crawford  then  proposed  that  stocks  which  would  be 
redeemable  in  1825  and  1826,  amounting  to  $24,000,000, 
bearing  six  and  seven  per  cent  interest,  should  be  ex- 
changed for  five-per-cent  stocks,  redeemable  in  1831, 1832, 
and  1833.  A  proposal  to  the  extent  of  renewing  one- 
half  that  amount  was  embodied  in  a  law ;  ^  but  the  secre- 
tary failed  to  induce  the  holders  of  these  stocks  to  make 
an  exchange,  save  to  a  very  small  amount.  The  in- 
creased demand  for  capital  to  prosecute  commercial  enter- 
prises had  the  usual  effect  of  raising  the  rate  of  interest 
for  money,  and  defeated  the  success  of  the  measure. 
This  event  was  not  foreseen  at  the  time  the  measure 
was  proposed.^  As  there  was  a  balance  in  the  treasury 
on  the  1st  of  January,  1824,  amounting  nearly  to  $10,- 
000,000,  which  would  be  shortly  increased,  Crawford  rec- 
ommended that  authority  be  granted  to  the  commissioners 
of  the  sinking-fund  to  purchase  the  seven-per-cent  stock, 
during  the  year,  at  rates  consistent  with  the  public  inter- 
est.    This  recommendation  was  favorably  received.^ 

1  Annual  Report,  December,  1817. 

2  Act,  April  20,  1822, 17  Cong.,  first  session,  chap.  28.  Crawford's  An- 
nual Report,  December,  182.3. 

3  Annual  Reports,  1821,  1822.  Ways  and  Means  Report,  Dec.  31,  1821. 
17  Cong.,  first  session. 

4  Act,  Jan.  22,  1824,  18  Cong.,  first  session,  cliap.  16.  The  balance  of 
the  seven-per-cent  stock  at  that  time  was  $8,606,490.27.  It  was  all  paid, 
except  a  trifling  sum,  during  the  year. 


1824.]  PAYMENT   OF   THE  FUNDED   DEBT.  309 

At  the  beginuing  of  1826,  !!<19,000,000  of  the  recent 
war-debt  were  redeemable.  It  was  probable  that  not 
more  than  '17,000,000  could  be  discharged  that  year. 
The  year  followhig,  $13,000,000  were  redeemable,  while 
it  was  equally  probable  that  no  larger  sum  could  be  paid 
than  in  the  preceding  year.  There  were,  therefore,  $18,- 
000,000  which  could  not  be  paid  in  those  two  years.  In 
1828  the  amount  of  j^rincipal  redeemable  would  proba- 
bly not  exceed  the  ability  of  the  treasury  to  discharge. 
The  two  succeeding  years,  no  portion  of  the  public  debt 
was  redeemable,  and  in  1831  less  than  $19,000.  "  Policy 
would  seem  to  suggest,"  said  Crawford,  "  with  a  view 
both  to  the  convenience  of  the  government,  and  the 
advantage  of  the  community,  that  the  excess  of  debt 
which  cannot  be  discharged  in  1826  and  1827  should  be 
thrown,  in  equal  portions,  upon  those  years  in  which 
nothing  is  payable.  For  the  present,  however,  it  may  be 
sufficient  to  confine  such  an  arrangement  to  the  excess  of 
the  year  1826.  From  the  state  of  the  money-market,  and 
the  high  credit  of  the  government,  no  doubt  is  enter- 
tained that  the  $12,000,000  required  to  provide  for  the 
excess  of  debt  on  the  1st  of  January,  1826,  may  be  bor- 
rowed at  five  per  cent,  reimbursable  in  1829  and  1830." 
He  desired  that  authority  be  granted  for  effecting  this 
arrangement  if  it  were  approved.^ 

The  same  object,  he  remarked,  might  be  accomplished 
by  an  exchange  of  the  stock  redeemable  the  1st  of  Janu- 
ary, 1826,  for  a  five-per-cent  stock,  redeemable  in  1829 
and  1830.  Crawford  favored  a  loan.  A  proposal  for  a 
loan,  he  added  truly,  invited  competition  from  all  the 
1  Annual  Report,  December,  1824. 


310      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [188*. 


moneyed  capitalists,  including  the  Bank  of  the  United 
States;  while  an  exchange  of  stock  confined  the  demand 
for  new  stock  to  the  holders  of  the  old,  who  constituted, 
not  only  a  small  portion  of  the  capitalists,  but  a  portion 
who  were  interested  in  preventing  the  exchange.  More- 
over, the  experience  of  the  government  during  the  last 
two  years  justified  the  preference  for  a  loan.  The  experi- 
ment for  exchanging  $24,000,000,  in  1822,  had  proved  a 
failure ;  and  another,  tried  the  following  year,  for  exchan- 
ging $15,000,000  of  the  six-per-cent  stock  of  1813,i  had 
resulted  in  the  exchange  of  only  13,308,807.45. 

Had  Crawford's  recommendation  been  adopted,  for  dis- 
posing of  the  excess  of  debt  redeemable  in  1826  and  1827, 
the  amount  redeemable  in  each  year  would  have  been  the 
folio  win  sf :  — 


In  1825 
1826 
1827 
1828 
1829 
1830 
1831 
1832 


1833 


1834 
1835 


$7,654,570.93,  at  6  per  cent. 
7,002,356.62,  at  6  per  cent. 
7,001,437  63,  at  6  per  cent. 
9,490,099.10,  at  6  per  cent. 
6,000,000.00,  proposed  to  be  at  5  per  cent. 
6,000,000  00,  proposed  to  be  at  5  per  cent. 
6,018,901.59,  proposed  to  be  at  5  per  cent. 
6,018,900.72.  of  which  the  sum  of  tl,018,- 

900.72  was  to   be  at   5  per  cent,  and 

15,000,000  at  4|  per  cent. 
6,673,055.31  at  4|  per  cent,  except  ^18,- 

901.59  at  5  per  cent. 
1,654,153.73,  at  4|  per  cent. 
4,735,296.30,  at  5  per  cent. 


This  included  all  the  public  debt  of  the  United  States, 
except  $7,000,000   of  five-per-cent   stock,   subscribed  to 

1  Act,  May  26,  1824,  18  Cong.,  first  session,  cLap.  192. 


1824.]  PAYMENT    OF    THE    iUNDED    DEBT.  311 

the  capitid  of  the  Bank  of  the  United  States,  and  $13,296,- 
231.45  of  three  per  cents,  both  of  which  were  payable  at 
the  pleasure  of  the  government. 

An  exchange  of  ''f'12,000,000  was  proposed  by  Congress, 
—  the  sum  that  could  not  be  redeemed  in  1826.  If  the 
exchange  could  not  be  made,  then  a  loan  by  the  govern- 
ment was  to  be  effected.  But,  instead  of  fixing  the  rate 
of  interest  at  five  per  cent,  Congress  cut  the  rate  down 
to  four  and  a  half  per  cent.^  The  consequence  was, 
that  only  -$1,585,138.88  were  exchanged,  and  none  what- 
ever was  subscribed  to  the  loan  offered.  The  reason  why 
the  loan  failed  was  the  low  rate  of  interest  offered,  cou- 
pled with  the  short  period  of  redemption,  and  the  activity 
in  commerce  and  manufactures  demanding  an  increase  of 
capital. 

One-third  of  the  amount  due  in  the  years  1825,  1826, 
and  1827,  was  held  by  Europeans ;  and  the  inquiry  was 
raised,  whether,  if  this  portion  of  the  debt  were  paid,  the 
remitting  of  the  sum  due  abroad  would  not  ruinously 
sweep  away  the  remainder  of  our  metallic  money .^  The 
author  who  put  forth  this  inquiry,  "  though  a  decided 
adversary  to  the  existence  of  a  great  public  debt,"  never- 
theless believed  that  the  nation  could  more  judiciously 
employ  its  surplus  in  making  internal  improvements  than 
in  liquidating  the  national  debt. 

During  Crawford's  administration  of  eight  j'ears,  debt- 
paying  had  proceeded  in  a  hopeful  manner.     On  the  1st 

1  Act,  Marcli  3,  1825,  18  Cong.,  second  session,  cliap.  100.  "Ways  and 
Means  Report,  Jan.  12,  1S2'>,  5  Finance,  p.  174. 

2  Laws's  Considerations,  etc.,  for  liqnidatinc,  witliin  the  Nf.xt  Four 
Years,  the  Six-per-cent  Stocks  of  the  U.  S.,  Wash.,  18:20,  p.  y. 


312      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1834. 

of  January,  1817,  the  whole  debt  of  the  United  States 
was  $123,491,965.16  ;  of  which  sum,  $115,257,805.48  were 
funded,  bearing  an  average  interest  of  5.56^  per  cent  per 
annum.  On  the  1st  of  January,  eight  years  afterward, 
the  debt  was  reduced  to  $86,045,003.18,  bearing  an  aver- 
age interest  of  5. 23 J  j^er  cent, — a  reduction  of  $37,446,- 
961.98  of  principal,  and  of  .33i  per  cent  in  the  average 
rate  of  interest. 

In  the  last  year  of  Crawford's  administration,  $5,000,- 
000  were  borrowed  at  four  and  a  half  per  cent  to  pay 
awards  under  the  Florida  treaty.^  The  money  was  bor- 
rowed from  the  United-States  bank.  A  similar  sum  was 
borrowed  from  the  bank  to  reimburse,  in  part,  a  war- 
loan  of  1812,  which  became  due  that  year,  amounting  to 
$10,331,000.  For  the  second  loan,  proposals  were  asked. 
The  amount  offered,  beside  that  of  the  bank,  was  $2,554,- 
585.37,  at  rates  varying  between  par  and  four  and  a 
half  per  cent  premium.  The  proposal  of  the  bank  was 
for  the  whole  amount  at  par.  Although  the  individual 
offers  were  far  more  favorable,  seemingly,  than  the  offer  of 
the  bank,  yet  considering  that  the  government  was  the 
proprietor  of  one-fifth  of  the  capital,  and  that  the  sum 
thus  offered  would  otherwise  be  unemployed,  the  offer  of 
the  bank  was  regarded  as  "  decidedly  the  most  advanta- 
geous for  the  government,  being  equal  to  an  individual 
offer  at  four  and  three-quarters  per  cent  premium."  ^ 

When  Rush  succeeded  Crawford  in  1824,  he  desired 
authority  to  contract  new  loans  at  five  per  cent  interest, 
to  pay  the  portions  which  could  not  be  reimbursed  of  the 

1  Act,  May  24,  1824,  18  Cong.,  first  session,  chap.  140. 

2  Annual  Rejjort,  December,  18'24. 


1824.]  PAYMENT    OF    THE   FUNDED    DEBT.  31-3 

loans  of  1812  that  were  approaching  maturity.  But  the 
Committee  of  Ways  and  Means,  of  which  McLane  was 
chairman,  affirmed  that  the  time  was  unfavorable  for  ex- 
changing stock,  or  procuring  new  loans  on  reasonable 
terms.  Moreover,  the  secretary  supposed  that  the  exist- 
ing six-per-cent  loans  could  not  be  paid  in  part,  —  a 
view  not  sustained  by  the  law  authorizing  them,  which 
expressly  reserved  the  right  of  paying  the  whole  or  any 
part  of  them  whenever  they  became  reimbursable.  The 
opinion  entertained  by  the  committee  was,  that  by  adopt- 
ing the  plan  of  partial  payments,  and  applying  the  surplus 
quarterly,  in  conformity  with  the  sinking-fund  law  of 
1817,  the  debt  would  be  more  speedily  and  economically 
reimbursed,  and  more  equally  and  beneficially  distributed 
through  different  years:  better  meeting  the  convenience 
of  the  government,  lessening  the  expenditure  on  ac- 
count of  interest,  and  effectually  preventing  the  accumu- 
lation of  money  in  the  treasury .^  That  portion  of  the 
debt,  therefore,  which  could  not  be  paid  when  it  ma- 
tured, was  continued  at  the  former  rate  of  six  per  cent. 
The  policy  of  Congress  was  wasteful,  and  without  any 
justification  whatever.  Had  a  large  portion  of  tlie  war- 
debt  of  1812  been  refunded  when  Crawford  desired,  at 
five  per  cent  interest,  at  which  rate  the  money  could 
have  been  easily  obtained,  a  considerable  saving  would 
have  been  effected. 

During  the  first  seven  years  after  the  sinking-fund  law 
of  1817  went  into  operation,  the  whole  sum  required  to  be 
paid  to  the  commissioners,  in  order  to  comply  fully  with 
its  terms,  had  not  been  paid  within  $3,000,000.     During 

1  Report,  Feb.  6,  182G,  5  Finance,  p.  285. 


314      FINANCIAL  HISTOKY  OF  THE  UNITED  STATES.       [1829. 

the  next  four  years,  however,  while  Rush  was  at  the  head 
of  the  treasury,  this  deficiency  was  paid,  beside  the  regu- 
lar annual  payments  of  $10,000,000.  Interest  was  always 
scrupulously  paid  when  the  quarter  came  around.  It 
may  be  added,  too,  that  there  was  not  always  a  sufficient 
amount  of  debt  redeemable  every  year  to  which  the  whole 
amount  of  the  annual  sinking-fund  could  be  applied. 
During  the  eleven  years  the  Act  had  been  in  operation, 
from  the  1st  of  January,  1817,  $146,669,773.48  had  been 
paid,  of  which  $88,834,108.66  were  for  principal,  and  the 
remainder  for  interest. 

The  flourishing  condition  of  the  revenues,  and  the 
prompt  payment  of  the  interest  of  the  debt,  produced  a 
marked  effect  on  the  price  of  the  public  stocks.  They 
rose  above  par,  notwithstanding  their  early  maturity. 
This  fact  operated  directly  to  increase  the  value  of  the 
three  per  cents,  and  to  create  the  belief  that  they,  too, 
would  be  finally  redeemed  at  par.  The  price  of  these 
rose  to  eighty-five ;  nor  were  they  easily  purchased  even 
at  that  figure.  In  1829  the  price  was  eighty-seven  and 
a  half,  and  the  most  of  them  were  finally  redeemed  at 
their  par  value.  Nine  years  previously  Crawford  had 
expressed  the  opinion  that  the  sales  of  the  Western  lands 
were  pledged  for  their  reimbursement,  and  that  at  some 
period  these  should  be  applied  for  their  redemption. ^  In 
1830  the  commissioners  of  the  sinking-fund  were  author- 
ized to  purchase  the  three  per  cents  at  the  best  rates  pos- 
sible.^  Par  was  paid  for  nearly  the  whole  amount.  In 
1832  the  remainder  was  paid,  amounting  to  $13,296,705.76, 

1  May  3,  IS'.'O,  Elliot,  p.  775. 

2  Act,  April  24,  1830,  L'l  Cung.,  first  session,  chap.  78. 


1S34.]  PAYMKNT    OF    THE    FUISDED    DEBT.  315 

and  lecaving  at  the  end  of  that  year  only  $7,001,698.83  of 
funded  debt.  It  may  be  questioned  whether  long  before, 
the  government,  seeing  its  ability  to  discharge  all  its 
indebtedness,  ought  not  to  have  given  notice  that  it 
would  ultimately  pay  the  full  amount  of  this  portion  of 
the  debt.  The  money  had  been  advanced  in  the  begin- 
ning ;  and  the  government  had  used  it  as  profitably  as  any 
other  funds,  and  was  under  an  equally  strong  obligation 
to  pay  it.i  Had  the  bank-shares  been  sold,  as  the  secre- 
tary of  the  treasury  desired,  the  avails  would  have  been 
more  than  sufficient  to  extinguish  the  entire  debt.  The 
government,  therefore,  was  really  released  from  the  bur- 
den of  indebtedness.  The  bank-shares  had  been  paid : 
they  yielded  a  rich  return,  —  far  more  tlian  the  interest  on 
the  small  amount  of  debt  remaining  un})aid.  With  what 
pleasure  did  McLane,  in  his  report  at  the  close  of  1832, 
remark,  that  "  the  debt  may,  therefore,  be  considered  as 
substantially  extinguished  after  the  1st  of  January  next, 
which  is  earlier  than  was  looked  for,  under  the  most  pros- 
perous and  economical  administration  of  our  affairs  that 
could  have  been  anticipated." 

In  October,  1834,  notice  was  given  by  the  secretary  of 
the  treasury  that  the  whole  of  the  debt  unredeemed 
after  the  1st  of  January  would  cease  to  bear  interest, 
and  would  be  promptly  paid  after  that  date.'^     The  duties 

1  Setting  aside  the  obligation,  this  portion  of  the  debt  might  have  been 
redeemed  more  economically,  had  Congress  not  forbidden  the  purchase  of 
them  above  sixty-five  per  cent  in  1817.  If  no  law  of  the  kind  had  been 
enacted,  the  three  per  cents  could  have  been  purchased  for  much  less  than 
their  face. 

2  The  estimated  amount  of  the  debt  not  assumed  by  the  government  in 
ITW,  including  the  foreign  as  well  as  the  domestic;  debt  of  the  States,  was 
$8,331,028.32  (Elliot's  Fiindmi/Sijstcm,  p.  1".0).    This  sum  was  never  paid. 


316      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1834. 

of  the  sinking-fund  commission  ceased ;  and  the  secre- 
tary of  the  treasury  was  intrusted  with  the  power  of 
paying  the  small  amount  of  stock,  and  interest  thereon, 
whenever  payment  should  be  demanded.  No  Act  was 
passed  abolishing  the  office  of  the  sinking-fund  commis- 
sioners ;  but  in  1830  the  secretary  of  the  treasury  was 
required  to  pay  over  all  the  surplus  in  the  treasury  above 
five  million  dollars  to  the  treasurers  of  the  States.  This 
requirement  was  a  practical  abolition  of  the  duties  of  the 
sinking-fund  commissioners.  Nor  for  many  years  was 
there  any  legislation  with  respect  to  disposing  of  the 
balance  of  the  debt,  which  might  never  be  presented  for 
payment.     The  amount  was  very  small. 

After  making  the  final  payment,  Woodbury  wrote  that 
"the  government  had  redeemed,  whether  at  home  or 
abroad,  the  entire  debt  of  both  the  Revolution  and  the 
late  war ;  paid  the  purchase-money  for  Florida  and  Loui- 
siana ;  and,  with  a  most  scrupulous  sense  of  moral  as  well 
as  political  obligation,  administered  in  various  ways  to 
the  wants,  and  atoned  for  many  of  the  losses,  of  those 
who  had  perilled  life  and  fortune  in  the  struggle  for  inde- 
pendence in  which  the  debt  arose.  Its  redemption  had 
been  efi"ected  without  imposing  heavy  burdens  upon  the 
people,  or  leaving  their  treasury  empty,  trade  languishing, 
and  industry  p'aralyzed,  but,  on  the  contrary,  with  almost 
every  great  interest  of  society  flourishing,  with  taxes  re- 
duced, a  surplus  of  money  on  hand,  valuable  stocks  and  ex- 
tensive lands  still  owned  by  the  government,  and  with  such 
various  other  financial  resources  at  command  as  to  give  to 
our  country,  in  this  respect,  a  very  enviable  superiority."  ^ 

1  Annual  Report,  December,  1834. 


1816.]  THE   SECOND    UNITED-STATES   BANK.  317 


CHAPTER  11. 

THE  SECOND  UNITED-STATES  BANK,  AND  THE  PUBLIC 
DEPOSITS. 

The  second  United-States  bank  finally  received  a  very 
laro-e  number  of  the  votes  of  both  Houses  of  Congress, 
and  also  the  cordial  assent  of  the  Executive.  Nearly  all 
doubt  concerning  the  constitutionality  of  such  an  institu- 
tion had  passed  away ;  and  Congress,  in  establishing  it, 
was  heartily  sustained  by  the  people.  Every  one  had 
experienced  the  ill  effects  of  a  depreciated  money;  and 
many  saw  no  way  of  curing  them,  save  through  a  national 
bank.  Great  things,  therefore,  were  expected  of  it.  How 
it  fulfilled  the  public  expectations,  we  shall  proceed  to 

show. 

The  object  of  establishing  the  bank  was  mainly  three- 
fold. First,  specie  payments  had  been  suspended,  wliich 
it  was  expected  the  bank  would  restore.  Secondly,  as  the 
paper  money  then  in  circulation  was  not  redeemable  in 
specie,  it  passed  at  varying  rates  of  discount,  which  sub- 
jected the  government  and  individuals  to  varying  losses. 
This  difficulty  it  was  expected  the  bank  would  remove, 
beside  providing  the  country  with  a  monetary  medium 
that  should  possess  equal  value  everywhere,  which  was 
not  the  case  with  the  bank-notes  then  in  use. 


318      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1817. 

The  capital  of  the  bank  was  thirty-five  million  dollars, 
one-fifth  of  which  was  to  be  subscribed  by  the  govern- 
ment, paying  therefor  in  coin,  or  in  five-per-cent  stock. 
Other  subscriptions  were  payable,  one-fourth  in  coin,  and 
the  remainder  in  coin,  or  stock  of  the  United  States. 
There  were  to  be  twenty-five  directors,  and  five  of  them 
were  to  be  appointed  by  the  President.  The  bank  was  to 
keep  the  public  deposits,^  and  to  aid  the  government, 
without  charge,  in  negotiating  its  loans.  Branches  could 
be  established,  and  notes  issued  of  any  denomination  not 
below  five  dollars,  which  were  to  be  receivable  in  all  pay- 
ments to  the  United  States.  No  other  bank  outside  the 
District  of  Columbia  was  to  be  established  by  Congress 
during  the  continuance  of  the  charter.  "  In  considera- 
tion of  the  exclusive  privileges  and  benefits  conferred," 
the  bank  was  required  to  pay  five  hundred  thousand  dol- 
lars annually  for  three  years  after  the  end  of  the  second 
3^ear  of  its  existence.  The  bank  was  to  continue  for 
twenty  years. 

The  task  confronting  the  bank  was  stupendous.  When 
it  began  business,  on  the  7th  of  January,  1817,  the 
notes  of  nearly  all  the  banks  outside  New  England  were 
depreciated.  Depreciation  was  greatest  in  Washing- 
ton and  Baltimore,  where  they  had  fallen  twenty-two 
per  cent  below  par.  At  Philadelphia  the  depreciation 
was  not  so  great,  yet  even  there  it  was  from  seven- 
teen to  eighteen  per  cent.  In  New  York  and  Charles- 
ton it  was  from  seven  to  ten  per  cent ;  but  in  the 
interior  of  the  country,  where  banks  were  established, 
the  depreciation  exceeded  even  that  at  Washington  and 

1  For  section  of  charter  relating  to  the  deposits,  see  p.  19, 


1817.]  THE   SECOND   UNITED-STATES    RANK.  319 

Baltimore.  New  England  alone  was  the  only  section 
of  the  Union  where  bank-notes  had  escaped  the  blight 
of  depreciation. 

In  restoring  these  depreciated  issues  to  par  with  gold 
and  silver,  the  United-States  bank  could  obtain  but  little 
assistance  from  the  State  banks.  Their  interests  lay  on 
the  other  side,  —  in  favor  of  continuing  the  suspension 
of  specie  payments.  They  were  earning  large  dividends. 
Never  had  such  profits  been  acquired  in  banking  before. 
It  was  a  new  and  dizzy  experience,  for  a  vast  number  of 
banks  suddenly  to  emerge  into  existence,  with  no  genu- 
ine capital,  and  soon  fail,  and  yet,  upon  the  ruin  of  their 
failure,  continue  to  do  business,  and  reap  greater  profits 
than  would  have  been  reaped  by  conducting  their  busi- 
ness on  a  sound  basis.  To  resume  specie  payments  would 
largely  destroy  the  rich  harvest  they  otherwise  would 
continue  to  gather.  So  long  as  they  were  permitted  to 
issue  their  own  notes  (bearing  no  interest,  and  not  re- 
deemable), the  more  they  issued,  the  larger  their  profits. 
Moreover,  the  noble  army  of  debtors  bravely  (we  will 
not  say  unselfishly)  fought  for  the  banks,  because  they 
could  see  that  their  indebtedness  evaporated  in  propor- 
tion to  the  inflation  of  the  bank-issues.  The  stockholders 
of  these  institutions,  it  is  true,  received  their  profits  in  a 
depreciated  money ;  but,  as  these  were  much  greater  than 
at  any  former  time,  they,  too,  were  opposed  to  resuming 
specie  payments.  Thus  those  large  interests,  the  banks 
and  the  debtor  classes,  were  opposed  to  every  plan  sug- 
gested for  restoring  the  bank  circulation  to  the  legal 
standard.  They  admitted  the  desirability  of  resuming 
specie   payments;  but,  whenever  an  effort  was  made   to 


320      nXANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1817. 

establish  a  practical  plan  for  doing  so,  their  opposition 
was  quickly  shown.^ 

One  cause  favoring  the  resumption  of  specie  payments 
was  the  restoration  of  peace ;  for  this  event  enabled  the 
banks  to  dispose  of  their  government  notes  and  stocks  at 
good  prices. 

Another  favoring  cause  was  the  action  of  Congress 
requiring  the  dues  to  the  government  to  be  paid  in  legal 
money.  That  body  resolved,  the  30th  of  April,  1816,^ 
that  all  duties,  taxes,  and  debts  payable  to  the  United 
States  after  the  twentieth  day  of  February,  1817,  should 
be  paid  in  the  *'  legal  currency "  of  the  government,  or 
treasury-notes,  or  those  of  the  Bank  of  the  United  States, 
or  of  other  banks  which  were  paid  on  demand  "in  the 
legal  currency  of  the  United  States."  This  Act  put  an 
end  to  the  gross  injustice  which  the  government  had  per- 
petrated on  several  cities  by  permitting  importers  to  pay 
duties  in  money,  varying  greatly  in  value.  We  shall  now 
endeavor  to  describe  what  the  United-States  bank  did 
toward  making  this  enactment  effectual. 

As  soon  as  the  bank  opened,  the  secretary  of  the  treas- 
ury directed  importers  to  lodge  their  bonds  with  it.  The 
.bank  agreed  to  make  the  discounts  necessary  to  pay 
them,  or,  rather,  the  notes  given  for  the  duties ;  to  secure 
which  the  bonds  were  taken.  This  agreement  on  the  part 
of  the  bank  was  a  very  grave  undertaking.  The  bank 
was  to  furnish  discounts  between  the  interval  of  the  20th 
of  February,  the  time  fixed  for  demanding  specie  or  its 
equivalent,  and  the  1st  of  July,  the  time  agreed  by  the 
banks  for  resuming  specie  payments.     During  this  period 

1  N.  Am.  Rev.,  vol.  xxxii.  p.  547.      2  14  Cong.,  firat  session,  Res.  8. 


1817.]  THE   SECOND   UNITED-STATES    BANK.  321 

of  four  months  it  was  supposed  that  discounts  to  the 
amount  of  ten  million  dollars  would  be  required.  The 
reason  why  the  secretary  effected  the  arrangement,  was 
because  he  feared  the  State  banks  would  not  furnish 
specie  to  the  importers;  and  if  they  did  not,  nor  the 
United-States  bank,  the  plan  of  the  government  must 
fail.     This  agreement  the  bank  faithfully  kept.^ 

Both  the  government,  and  the  United-States  bank, 
were  desirous  of  hastening  the  return  of  specie  payments. 
The  banks  had  agreed  to  resume  in  July,  1817 ;  but 
neither  Crawford,  who  was  secretary  of  the  treasury,  nor 
the  Bank  of  the  United  States,  had  much  faith  that  they 
would  fulfil  their  agreement.  The  Bank  of  the  United 
States,  therefore,  began  negotiations  with  the  State  banks 
for  the  purpose  of  inducing  them  to  agree  to  pay  specie 
on  the  20th  of  February,  instead  of  postponing  the  time 
until  the  1st  of  July.  On  the  one  hand,  if  the  national 
bank  succeeded,  the  obligation  which  it  had  incurred,  of 
discounting  all  the  bonds  of  importers,  would  be  very 
much  diminished ;  for,  if  the  State  banks  paid  specie,  of 
course  their  notes  would  be  readily  taken  by  the  govern- 
ment :  on  the  other  hand,  if  they  refused  to  make  an 
arrangement,  a  large  amount  of  valuable  paper  for  dis- 
count purposes  would  go  immediately  to  the  United- 
States  bank,  thus  losing  many  of  their  best  customers. 
Hence  all  the  banks  were  alike  interested  in  effecting  an 
harmonious  arrangement  by  which  the  responsibility  of. 
the  national  bank  would  be  reduced,  and  the  patronage 
of  the  other  banks  be  retained. 

With  interests  so  strongly  allied,  an  arrangement  was 

1  4  Finance,  pp.  768,  769. 


322      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1817. 

made ;  although  it  may  be  questioned,  whether,  if  a  na- 
tional bank  had  not  been  established,  any  plan  for  the 
restoration  of  specie  payments  could  have  been  devised, 
receiving  their  assent  and  co-operation.  While  no  rival 
institution  existed,  the  State  banks  controlled  the  situa- 
tion ;  and  they  knew  it,  and  improved  the  occasion  to  the 
best  advantage.  They  surely  would  have  been  much 
slower  in  resuming  specie  payments  than  they  were,  had 
the  United-States  bank  not  been  founded. 

The  following  plan  was  finally  devised,^  by  which  the 
incorporated  banks  of  New  York,  Philadelphia,  and  Rich- 
mond, agreed  to  begin  and  continue  the  payment  of  specie 
after  the  20th  of  February.  On  that  day  the  balances  in 
the  several  banks  belonging  to  the  government  were  to 
be  transferred  to  the  Bank  of  the  United  States,  and 
retained  by  it  until  the  1st  of  July,  when  they  were  to 
be  paid,  with  the  interest  thereon.  In  liquidating  the 
balances  which  might  be  due,  the  United-States  bank 
agreed  to  credit  them  respectively  with  the  amount  of 
their  checks  on  banks  which  were  parties  to  the  agree- 
ment. 

The  payment  of  the  balances  which  might  accumulate 
against  the  baiiks,  subsequently  to  the  transfer  of  the 
balances  previously  mentioned  from  the  payment  to  them 
of  government  dues  in  return  for  money  previously  bor- 
rowed, were  not  to  be  demanded  by  the  Bank  of  the 
United  States  until  it  and  its  branches  had  discounted, 
for  individuals  other  than  those  having  duties  to  pay  sub- 
sequently to  the  19th  of  February,  certain  specified  sums 
in  various  places,  provided  the  money  was  wanted  within 

1  Feb.  1,  1817. 


1818.]  THE   SECOND    UNITED-STATES   BANK.  323 

sixty  days,  and  by  persons  who  should  offer  good  paper. 
If  the  whole  amount  should  not  be  desired  by  lenders, 
then  the  balance  was  to  be  loaned  to  the  banks  that 
should  sign  the  agreement.^ 

During  the  years  1817  and  1818  the  government 
transferred  to  the  bank  at  Philadelphia,  from  the  State 
banks,  ,$7,472,419.87,  and  .13,336,691.67  of  special  depos- 
its.^ When  the  bank  began  business,  eighteen  branches 
were  established  in  different  States,  which  multiplied  to 
twenty-five.  But  the  notes  of  the  national  bank  were 
everywhere  received  in  paj'ment  of  duties  and  other 
taxes  to  the  government  without  reference  to  the  place 
of  issue,  and  were  redeemable  in  specie  at  the  bank,  or 
any  of  its  offices.  In  those  places  where  the  medium  of 
exchange  was  composed  of  inconvertible  paper,  it  was 
evidently  the  true  policy  of  the  national  bank  to  contract 
such  circulation,  either  by  demanding  payment  of  it  in 
coin,  or  by  refusing  to  receive  it.  Unhappih',  it  pursued 
another  policy,  from  which  it  sustained  no  little  incon- 
venience. 

The  branches  were  instructed  to  give  their  own  notes 
in  preference  to  those  of  the  State  banks,  and  to  deliver 
drafts  on  the  eastern  cities,  whenever  it  could  be  done,  to 
prevent  remitting  their  own  notes.  The  branch-notes 
and  the  drafts,  issued  in  consequence  of  these  instruc- 
tions, were  swept  eastward  by  the  operations  of  trade. 
A  vacuum  in  the  circulation  was  thus  produced,  that 
could  only  be  supplied  by  the  local  notes,  which  were 
readily   received    by   the    officers    of    the    United-States 

1  4  Finance,  p-  769. 

2  Smith's  Report,  Appendix,  Sen.  Doc.  No.  104,  21  Cong.,  first  session. 


324      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1818. 

bank,  and  were  retained  by  them  as  a  fund  on  which 
interest  was  charged  to  the  State  banks. 

By  accepting  bank-notes  which  there  were  good  rea- 
sons for  supposing  would  not  be  redeemed,  and  making 
them  the  circulating  medium  in  the  section  where  they 
were  issued,  the  national  bank  committed  the  serious 
error  of  increasing  the  notes  of  the  very  banks  that  were 
the  least  worthy  of  confidence.  The  reason  assigned 
by  the  bank  was,  that  this  was  the  only  means  of  indu- 
cing the  State  banks  to  resume  specie  payments.  But 
these  institutions  had  no  such  intention ;  for,  when  the 
United-States  bank  was  afterward  obliged  to  refuse  to 
pay  in  specie  the  notes  of  its  branches,  many  of  the  State 
banks  began  to  suspend  and  evade  specie  payments. 

So  long  as  the  notes  of  each  office  were  payable  at  all 
the  others,  and  the  office  issuing  them  was  not  liable  ex- 
clusively for  their  redemption,  the  discounts  at  those 
places  against  which  there  was  a  balance  of  trade  be- 
came larger  in  proportion  to  their  indemnity  against 
demands.  As  the  notes  of  the  offices  were  rapidly  car- 
ried off,  the  payment  of  these  discounts  was  necessarily 
made  in  the  notes  of  the  local  institutions.  Thus  one 
inevitable  effect  of  the  system  was  to  increase  the  debts 
of  the  State  banks  to  the  offices  of  the  Bank  of  the 
United  States  at  these  places.  The  demands  of  the  bank 
were  suffered  to  accumulate.  Instead  of  gradually  redu- 
cing them  by  requiring  specie  in  small  quantities,  which 
would  not  have  been  felt,  and  which  would  have  relieved 
the  branches  of  the  United-States  bank,  the  reduction 
was  not  urged  early  enough :  consequently,  when  the 
national  bank  began  to  call  for  specie,  its  demands  were 


1818.]  THE   SECOND   UNITED-STATES   BANK.  325 

SO  considerable,  that  not  only  were  the  local  banks  ex- 
posed, but  also  the  citizens  in  their  vicinity,  to  a  very 
severe  pressure. 

When  the  bank  began  business,  over  87,000,000  of 
specie  were  imported  to  secure  its  notes.  Those  issued 
by  the  bank,  as  well  as  by  the  branches,  were  redeemed, 
without  reference  to  the  place  where  they  were  payable, 
for  a  considerable  period.  Drafts  were  also  given  with- 
out limit  on  the  parent-bank  and  northern  ojB&ces,  by  the 
western  offices,  at  par,  or  at  a  premium  merely  nomi- 
nal. As  soon  as  the  notes  of  the  southern  and  western 
branches  were  paid  or  received  b}-  the  bank,  or  the  north- 
ern branches,  they  were  returned  to  the  source  whence 
they  were  first  issued,  and  once  more  pvit  into  circula- 
tion ;  and  thus  they  were  kept  in  constant  activity.  The 
result  may  be  easily  divined.  The  bank  and  the  north- 
ern offices  were  drained  of  their  capital ;  and  on  the 
20th  of  July,  1818,  eighteen  months  after  opening  its 
doors  the  institution  was  obliged  to  adopt  the  policy 
of  rapidly  curtailing  its  business.  During  this  period 
it  had  had  the  benefit  of  immense  government  de- 
posits. At  the  time  of  beginning  curtailments,  these 
deposits  amounted  to  $8,000,000,  and  in  some  preced- 
ing periods  th3y  had  been  even  larger.  The  curtail- 
ments were  in  the  south-western  offices,  and  within 
eight  months  amounted  to  $6,530,159.49.  Yet,  after 
applying  this  remed}',  the  bank  at  Philadelphia,  and  its 
New- York  and  Boston  branches,  were  in  a  worse  con- 
dition than  before. 

Although  the  western  branches  were  directed  to  di- 
minish their  discounts,  they  purchased  what  were  called 


326      FINANCIAL  HISTOEY  OF  THE  UNITED  STATES.       [1819. 

"  race-horse  bills  "  ^  to  a  greater  amount  than  their  cur- 
tailments. The  bank  itself  continued,  during  the  whole 
period,  to  purchase  and  collect  drafts  on  the  south-western 
offices,  though  a  very  large  portion  of  its  capital  already- 
lay  in  those  quarters  of  the  Union,  and  though  the  great 
object  of  the  curtailments  was  to  draw  funds  from  those 
points.  Indeed,  during  this  period,  the  debt  due  in  Ken- 
tucky and  Ohio,  instead  of  diminishing,  was  increased 
more  than  half  a  million  dollars. 

These  curtailments  were  ordered  in  March,  1819.  The 
bank  at  that  time  was  in  a  truly  deplorable  condition. 
Vast  sums  of  specie  had  been  imported  at  large  expense, 
to  maintain  specie  payments;  but  nearly  all  was  gone. 
On  the  21st  of  April  there  were  only  fl26,745.28,  and  the 
bank  owed  to  the  city  banks  of  Philadelphia  $79,125.99. 
"  All  the  resources  of  the  bank,"  says  Cheves,  its  presi- 
dent, from  whose  report  many  of  these  facts  are  drawn, 
"would  not  have  sustained  it,  in  this  course  and  mode 
of  doing  business,  another  month.  Such  was  the  pros- 
trate state  of  the  bank  of  the  nation,  which  had,  only 
twenty-seven  months  before,  commenced  business  with  an 
untrammelled  active  capital  of  828,000,000."  2 

When  Cheves  was  elected  president,  in  March,  1819,  a 
very  different  administration  was  begun.     Jones,  the  for- 

1  These  were  drafts  drawn  between  the  different  places  where  branches 
existed ;  so  that  a  bill  which  fell  due  at  one  place  was  met  by  tlie  discount 
of  a  bill  drawn  on  another  place:  in  other  words,  this  was  a  mode  of 
making  renewals. 

2  Spencer's  Report,  Nov.  25,  1818,  15  Cong.,  second  session.  Clarke  and 
Hall's  Doc.  Hist,  of  Bank  of  U.  S.,  p.  714.  For  an  examination  of  Spen- 
cer's Report,  see  the  Letters  of  Aegles,  which  contain  "  a  complete  refuta- 
tion of  every  charge  against  the  directors  of  the  bank,"  Baltimore,  1819. 


1819.1  THE   SECOND   UNITED-STATES    HANK.  327 

mer  president,  whose  incapacity  for  sucli  a  position  was 
demonstrated  while  performing  the  duties  of  secretary 
of  the  treasury,  after  Gallatin's  retirement,  had  nearly 
ruined  the  bank,  and  had  weakened,  if  not  utterly  de- 
stroyed, the  hopes  of  many  who  looked  to  that  institution 
to  restore  and  preserve  a  sound  circulating  medium.  It 
is  true  that  the  bank  had  maintained  specie  payments  at 
great  sacrifice  to  itself :  it  had  furnished  aid  to  those  who 
wanted  money  to  pay  to  the  government  and  to  others. 
Yet  the  condition  of  the  currency  was  not  satisfactory. 
On  the  9th  of  April  the  board  of  directors  proposed  the 
following  mode  of  relief:  — 

1.  To  continue  the  curtailments  previously  ordered. 
2.  To  forbid  the  officers  in  the  South  and  West  to  issue 
their  notes  when  the  exchanges  were  against  them.  3. 
To  collect  the  balances  due  by  the  local  banks  to  the 
offices.  4.  To  claim  of  the  government  the  time  neces- 
sary to  transfer  funds  from  the  offices  where  money  was 
collected  to  those  where  it  was  to  be  disbursed,  as  well 
as  like  time  (until  the  difficulties  of  the  bank  were  re- 
moved) to  transfer  funds  to  meet  the  notes  of  offices  paid 
into  the  bank,  or  other  offices  than  those  where  they  were 
payable  according  to  their  tenor.  5.  To  pay  debentures 
in  the  same  way  as  the  duties  on  which  the  debentures 
were  secured  had  been  paid.  6.  To  obtain  a  European 
loan  of  $2,500,000  for  a  period  not  exceeding  three  years. 

"These  measures,  simple  and  obvious  as  they  were, 
lifted  the  bank,  in  the  short  space  of  seventy  days,^  to  a 
state  of  safety,  and  even  power,  enabled  it  to  cease  its  cur- 
tailments, except  at  points  where  it  had  an  excess  of  cap- 

1  From  March  ti  to  May  17. 


328      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1819. 

ital;  to  defy  attacks  upon  it;  and  to  sustain  other  institu- 
tions which  wanted  aid,  and  were  ascertained  to  be  solvent ; 
above  all,  to  establish  the  soundness  of  the  currency 
which  had  just  before  been  deemed  so  hopeless,  and,  in  a 
single  season  of  business,  to  give  to  every  office  as  much 
capital  as  it  could  advantageously  employ."  ^ 

As  we  have  seen,  the  government  required  every  debtor, 
after  the  20th  of  February,  1817,  to  pay  specie,  treas- 
ury-notes, or  bank-notes  redeemable  at  par  in  specie. 
Through  the  agency  of  the  United-States  bank,  the  other 
banks  in  the  principal  cities  were  induced  to  begin  spe- 
cie payments  at  that  time.  If  the  United-States  bank 
had  not  been  chartered,  it  is  difficult  to  see  how  the 
government  could  have  executed  its  determination :  for 
the  State  banks  certainly  would  not  have  resumed  before 
the  1st  of  July,  perhaps  not  then ;  and,  if  they  had  not, 
where  could  debtors  have  obtained  the  specie  needed  to 
discharge  their  indebtedness?  If  bank-notes  had  not  been 
payable  in  specie,  the  government  would  not  have  taken 
them ,  and  the  only  money  which  it  could  have  received 
wauld  have  been  a  very  small  amount  of  specie.  To  sud- 
denly confine  the  country  to  this  small  resource,  would 
have  produced  the  most  serious  consequences. 

One  object,  therefore,  of  establishing  the  national  bank, 
to  restore  specie  payments,  was  attained.  They  were 
maintained,  too,  so  long  as  the  bank  existed.  To  keep 
true  to  this  end,  the  bank  had  made  heavy  sacrifices. 
Specie  was  imported  on  several  occasions  at  heavy  cost. 
To  avoid  shipping  coin  from  the  United  States  in  1822, 
to  pay  the  instalment  due  that  year  to  the  French  Gov- 

1  President  Chaves's  Exposition  to  the  Stockholders,  23  Niles,  p.  89. 


1819.]  THE   SECOND    UNITED-STATES   BANK.  329 

ernment  by  the  Louisiana  treaty,  a  loan  was  negotiated 
in  London  for  the  amount  required.  It  could  not  have 
been  collected  here,  except  at  great  expense  ;  and  the 
drain  would  have  seriously  affected  all  our  business 
interests. 

A  writer  who  was  strongly  opposed  to  both  of  the 
United-States  banks,  and  who  contended  that  "the  peo- 
ple were  at  work  accumulating  the  means  necessary  to 
meet  their  engagements,"  and  that  "  the  currency  would 
have  soon  become  sound  and  uniform  "  in  1791  and  in 
1817,  admitted  "  that  the  establishment  of  the  banks  may 
have  accelerated  the  resumption  of  specie  payments  in 
both  cases."  And  this  was  the  very  least  that  could  be 
said  by  an  opponent,  concerning  the  great  work  of  the 
bank  in  resuming  specie  payments.^ 

In  order  to  maintain  them,  it  was  necessary  for  the 
bank,  in  1819,  to  contract  its  discounts,  and  to  demand 
specie  from  other  banks,  —  a  movement  which  led  them 
to  reduce  their  discounts;  and  tliis  change  of  policy, 
which  could  not  be  avoided,  caused  sore  distress  through- 
out the  country.  During  the  years  1815  and  1816  the 
bank  circulation  increased  to  1110,000,000;  while  in  the 
year  1819  it  was  reduced  $565,000,000,  —  a  reduction  of 
fifty-nine  per  cent.  This  was  an  enormous  contraction, 
and  the  evils  following  it  were  wide-spread.^ 

1  Remarks  upon  the  Bank  of  U.  S.,  p.  25. 

2  On  the  ilth  of  December,  1819,  Condy  Raguet  was  appointed  chairman 
of  a  committee,  by  the  Senate  of  Pennsylvania,  to  inquire  into  the  causes 
and  extent  of  the  present  distress;  and  on  the  2i)th  of  January  following 
he  made  an  elaborate  rei)ort  on  the  subject.  The  varied  forms  in  wliich 
the  distress  appeared  are  thus  concisely  stated  :  — 

"  1.  Ruinous  sacrifices  of  landed  property  at  sheriff's  sales,  whereby,  in 


330      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1830. 

Another  very  important  function  performed  by  the 
bank  was  in  equalizing  the  rates  of  domestic  exchange. 
Much  complaining  was  heard  from  the  dealers  in  ex- 
change against  the  bank  for  doing  this,  but  to  the  people 
generally  the  most  signal  benefits  followed.  McDuffie, 
however,  fell  into  an  error  when  he  calculated  the  loss 
to  the  people  at  $6,000,000  a  year  from  the  operations 
of  commercial  exchange.      He  estimated  the   extent  of 

many  cases,  lands  and  houses  have  been  sold  at  less  than  a  half,  a  third, 
or  a  fourth,  of  their  former  value,  thereby  depriving  of  their  homes,  and  of 
the  fruits  of  laborious  years,  a  vast  number  of  our  industrious  farmers. 

"2.  Forced  sales  of  merchandise,  household  goods,  farming  stock  and 
utensils,  at  prices  far  below  the  cost  of  production. 

"3.  Numerous  bankruptcies  and  pecuniary  embarrassments  of  every 
description,  as  well  among  the  agricultural  and  manufacturing  as  the 
mercantile  classes. 

"  4.  A  general  scarcity  of  money  throughout  the  country,  which  renders 
it  almost  impossible  for  the  husbandman,  or  other  owner  of  real  estate,  to 
borrow  at  a  usurious  interest,  and  where  landed  security  of  the  most  indu- 
bitable character  is  offered  as  a  pledge.  A  similar  difiQculty  of  procuring 
on  loan  had  existed  in  the  metropolis  previous  to  October  last,  but  has 
since  then  been  partially  removed. 

5  and  7.  "A  general  suspension  of  labor,"  and  "  a  universal  suspension 
of  all  large  manufacturing  operations. 

"  6.  An  almost  entire  cessation  of  the  usiial  circulation  of  commodities, 
and  a  consequent  stagnation  of  business,  which  is  limited  to  the  mere  pur- 
chase and  sale  of  the  necessaries  of  life,  and  of  such  articles  of  consumption 
as  are  absolutely  required  by  the  season. 

8  and  9.  "  Usurious  extortions,"  and  "  the  overflowing  of  our  prisons 
with  insolvent  debtors,  most  of  whom  are  confined  for  trifling  sums. 

10  and  11.  "  Numerous  lawsuits,"  and  "  vexatious  losses  arising  from  the 
depreciation  and  fluctuation  in  the  value  of  bank-notes,  the  impositions  of 
brokers,  and  the  frauds  of  counterfeiters. 

"  12.  A  general  inability  in  the  community  to  meet  with  punctuality  the 
payment  of  debts,  even  for  family  expenses,  which  is  experienced  as  well 
by  those  who  are  wealthy  in  property  as  by  those  who  have  hitherto  relied 
upon  their  current  receipts  to  discharge  their  current  engagements."  — 
Appendix,  Raguet's  Currency  and  Banking,  p.  289. 


1830.]  THE   SECOND   UNITED-STATES   BANK.  331 

those  operations  at  1^60,000,000  a  year,  and  the  loss  sus- 
tained by  the  merchants,  planters,  farmers,  and  man- 
ufacturers, ten  per  cent  of  this  sum,  — "  the  excess  of 
the  rate  of  exchange  between  its  natural  rate  in  a 
sound  state  of  the  currency,  and  beyond  the  rate  to 
which  it  had  been  actually  reduced  by  the  operations  of 
the  Bank  of  the  United  States."  This  annual  tax  of 
$6,000,000,  he  afSrmed,  was  levied  from  the  commercial 
cities  by  those  who  were  engaged  in  the  business  of  bro- 
kerage. But  the  brokers,  while  doubtless  making  a  very 
handsome  profit,  levied  no  such  tax.  As  another  has 
explained,  had  the  rates  of  exchange  been  in  reality  so 
inequitably  unfavorable,  remittances  would  have  been 
made  in  merchandise.  Indeed,  this  was  often  done ;  but 
the  results  did  not  essentially  vary,  for  the  prices  of 
goods,  measured  in  the  depreciated  local  currency,  rose 
with  its  depreciation.  If  a  bill  on  Boston  was  at  eight 
per  cent  advance,  it  would  have  bought  in  the  market 
from  six  to  eight  per  cent  more  produce  than  the  bill  of  a 
Charleston  bank.^  Had  business  been  transacted  in  the 
legal  money  of  the  land,  there  would  have  been  no  mis- 
conception of  the  truth  of  these  transactions.  Never- 
theless, the  dealers  in  bills  of  exchange  flourished  while 
the  uncertain  sea  of  exchanges  existed,  and  the  United- 
States  bank  performed  a  great  and  valuable  work  in 
equalizing  them  tliroughout  the  country. 

The  bank,  says  McDuffie,  actually  furnished  u  circu- 
lating medium  more  uniform  than  specie.  Funds  could 
be  transported  from  one  part  of  the  Union  to  another, 
through  the  aid  afforded  by  the  bank,  at  an  expense  not 

1  N.  Am.  Rev.,  t'oI.  xxxii.  p.  55. 


332      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1830. 

exceeding  one-half,  and  frequently  less  than  one-quarter, 
of  the  cost  of  carrying  silver. 

For  all  the  purposes  of  revenue,  it  furnished  a  national 
monetary  circulation  of  perfect  uniformity,  attaining  that 
ideal  perfection  which  even  a  currency  of  gold  and  silver, 
in  a  country  so  extensive,  cannot  possess.  All  the  funds 
of  the  government  were  transported  from  one  point  to 
another  free  of  expense ;  thus  furnishing,  "  both  to  the 
government  and  to  the  people,  a  currency  of  absolutely 
uniform  value  in  all  places,  for  all  the  purposes  of  pay- 
ing the  public  contributions,  and  disbursing  the  public 
revenue." 

"  Upon  the  whole,  then,"  concludes  a  committee  of 
investigation  in  1830,  "it  may  be  confidently  asserted 
that  no  country  in  the  world  has  a  circulating  medium 
of  greater  uniformity  than  the  United  States,  and  that 
no  country  of  any  thing  like  the  same  geographical  extent 
has  a  currency  at  all  comparable  to  that  of  the  United 
States,  on  the  score  of  uniformity."  ^ 

The  same  view  was  entertained  by  the  Senate  com- 
mittee who  inquired  "  into  the  expediency  of  establishing 
a  uniform  national  currency  for  the  United  States."  Sena- 
tor Smith  of  Maryland  was  chairman.  After  showing 
what  currency  was  furnished  by  the  State  banks,  the  com- 
mittee remark, — 

"There  is,  however,  superadded  to  this  currency,  a  general 
currency,  more  known,  more  trusted,  and  more  valuable,  than 
the  local  currency,  which  is  employed  in  the  exchanges  between 
different  parts  of  the  country.     These  are  the  notes  of  the  na- 

1  McDuffie's  Eeport,  April  13, 1830, 21  Cong.,  first  session.  Clarke  and 
Hall,  p.  734. 


1830.]  THE   SECOND   UNITED-STATES   BANK.  333 

tional  bank.  These  notes  are  receivable  for  the  goverument 
by  the  nine  thousand  receivers  scattered  throughout  every  part 
of  the  country.  They  are,  in  fact,  in  the  course  of  business, 
paid  in  gold  or  silver,  though  they  are  not  legally  or  necessa- 
rily so  paid  by  the  branches  of  the  bank  in  every  section  of  the 
Union.  In  all  commercial  places  they  are  received,  in  all  trans- 
actions, without  any  reduction  in  value  ;  and  never,  under  any 
circumstances,  does  the  paper,  from  the  remotest  branches, 
vary  beyond  a  quarter  of  one  per  cent  in  its  actual  exchange 
for  silver.  Here,  then,  is  a  currency  as  safe  as  silver,  more 
convenient  and  more  valuable  than  silver,  which,  through  the 
whole  western  and  southern  and  interior  parts  of  the  Union, 
is  eagerly  sought  in  exchange  for  silver ;  which,  in  those  sec- 
tions, often  bears  a  premium  paid  in  silver ;  which  is,  through- 
out the  Union,  equal  to  silver,  in  payment  to  the  government, 
and  payments  to  individuals  in  business ;  and  which,  when- 
ever silver  is  needed  in  any  part  of  the  country,  will  command 
it  without  the  charge  of  the  slightest  fraction  of  a  percentage. 
By  means  of  this  currency,  funds  are  transmitted  at  an  expense 
less  than  in  any  other  country.  In  no  other  country  can  a  mer- 
chant do  what  every  citizen  of  the  United  States  can  do,  —  de- 
posit, for  instance,  his  silver  at  St.  Louis,  or  Nashville,  or  New 
Orleans,  and  receive  notes  which  he  can  carry  with  him  a  thou- 
sand or  fifteen  hundred  miles,  to  the  Atlantic  cities,  and  there 
receive  for  them  an  equivalent  amount  of  silver,  without  any 
expense  whatever,  and  in  no  possible  event  an  expense  beyond 
a  quarter  of  one  per  cent.  If,  however,  a  citizen  does  not  wish 
to  incur  the  anxiety  of  carrying  these  notes  with  him,  or  to  run 
the  hazard  of  the  mail,  he  may,  instead  of  them,  receive  a  draft 
payable  to  himself  or  his  agent  alone,  so  as  to  insure  the  receipt 
of  an  equal  amount,  at  an  expense  of  not  one-half,  and  often  not 
one-fourth,  of  the  actual  cost  of  carrying  the  silver.  .  .  .  This 
seems  to  present  a  state  of  currency  approaching  as  near  to 


334      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1829. 

perfection  as  could  be  desired  ;  for  here  is  a  currency  issued  at 
twenty-four  different  parts  of  the  Union,  obtainable  by  any 
citizen  who  has  money  or  credit.  When  in  his  possession,  it  is 
equivalent  to  silver  in  all  his  dealings  with  all  the  nine  thousand 
agents  of  the  government  throughout  the  Union.  In  all  his 
dealings  with  the  interior,  it  is  better  than  silver ;  in  all  his 
dealings  with  the  commercial  cities,  equal  to  silver ;  and  if,  for 
any  purpose,  he  desires  the  silver  with  which  he  bought  it,  it  is 
at  his  disposal,  almost  universally,  without  any  diminution,  and 
never  more  than  a  diminution  of  one-quarter  per  cent.  It  is 
not  easy  to  imagine,  it  is  scarcely  necessary  to  desire,  any  cur- 
rency better  than  this."  ^ 

The  bank  had  thus  fulfilled  the  great  ends  ^or  which  it 
was  created.  It  had  restored  specie  payments ;  it  had 
equalized  the  exchanges ;  it  had  furnished  a  currency 
which  was  readily  accepted  throughout  the  Union ;  it 
had  kept  the  government  deposits  safely,  and  had  con- 
ducted all  the  public  business  intrusted  to  it  honestly 
and  efficiently.  So  far  as  the  government  was  concerned, 
there  was  no  ground  for  complaint,  no  reason  to  fear  mis- 
management in  the  future.  The  ill  effects  produced  by 
wrong  management  in  the  beginning  had  passed  away, 
and  the  great  value  of  the  institution  was  everywhere 
acknowledged. 

When  Jackson  became  President,  in  1829,  his  enmity 
toward    the    bank    was    not    long    concealed.^      He    de- 

1  Clarke  and  Hall,  p.  772. 

2  In  his  first  animal  message,  the  President  said,  "  The  charter  of  the 
Bank  ot  the  United  States  expires  in  1836,  and  its  stockholders  will  most 
probably  apply  for  a  renewal  of  their  privileges.  In  order  to  avoid  the 
evils  resulting  from  precipitancy  in  a  measure  involving  such  important 
principles,  and  such  deep  pecuniary  interests,  I  feel  that  I  cannot,  in  justice 


1829.]  THE   SECOND    UNITED-STATES    BANK.  335 

clared  that  it  was  corrupt  and  dangerous.  His  opposi- 
tion, in  truth,  was  grounded  in  no  such  lofty  sentiments. 
He  was  opposed  to  it  because  he  could  not  control  its 
offices,  and  convert  the  institution  into  a  piece  of  party 
machinery.  Hitherto  the  hand  of  the  political  partisan 
had  not  been  felt  in  its  management.  When  the  attempt 
was  made  to  remove  Mason,  the  president  of  the  branch 
at  Portsmouth,  whose  chief  offence  seemed  to  be  that  he 
"  was  a  friend  of  Webster,"  Biddle,  the  president  of  the 
bank,  thus  wrote  to  the  secretary  of  the  treasury  con- 
cerning the  matter:  "For  the  bank,  which  has  specific 
duties  to  perform,  and  which  belongs  to  the  country,  and 
not  to  any  party,  there  is  but  one  course  of  honor  or  of 
safety.  Whenever  its  duties  come  in  conflict  with  the 
spirit  of  party,  it  should  not  compromise  with  it,  nor 
capitulate  with  it,  but  resist  it  —  resist  it  openly  and  fear- 
lessly. In  this,  its  interest  concurs  with  its  duty,  as,  it 
will  be  found  at  last,  such  is  the  good  sense  of  the  coun- 
try, that  the  best  mode  of  satisfying  all  parties  is  to  dis- 
regard them  all."  Unable  to  remove  its  officers,  or  to 
take  away  its  charter,  the  President  sought  to  cripple  its 
resources  by  withdrawing  the  government  deposits. 

to  the  parties  interested,  too  soon  present  it  to  the  deliberate  consideration 
of  the  Legislature  and  the  people.  Both  the  constitutionality  and  the  expe- 
diency, of  the  law  creating  the  bank,  are  well  questioned  by  a  large  propor- 
tion of  our  fellow-citizens;  and  it  must  be  admitted  by  all,  that  it  has  failed 
in  the  great  end  of  establishing  a  uniform  and  sound  currency.  Under 
these  circumstances,  if  such  an  institution  is  deemed  essential  to  the  fiscal 
operations  of  the  government,  I  submit  to  the  wisdom  of  the  Legislature, 
whether  a  national  one,  founded  upon  the  credit  of  the  government  and 
its  revenues,  might  not  be  devised,  which  would  avoid  all  constitutional 
difficulties,  and,  at  the  same  time,  secure  all  the  advantages  to  the  govern- 
ment that  were  expected  to  result  from  the  present  bank." 


336      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1833. 

Ingham,  the  secretary  of  the  treasury,  was  stoutly  op- 
posed to  their  removal.  His  successor,  McLane  of  Dela- 
ware, in  his  annual  report  to  the  House,  remarked,  that, 
during  the  year,  incidents  had  occurred  which  "tended 
to  disturb  the  public  confidence  in  the  management  of 
the  instiution;  and  these,  taken  in  connection  with  the 
necessary  arrangements  in  anticipation  of  finally  closing 
its  business,  had  suggested  an  inquiry  into  the  security  of 
the  bank  as  a  depository  of  the  public  funds."  What,  in 
truth,  was  the  condition  of  the  bank  at  this  time?  Its 
liabilities  amounted  to  187,296,950.20,  and  the  fund  to 
meet  them  $79,593,870.97 ;  showing  an  excess  of  142,296,- 
920.77.  The  secretary's  blow  somewhat  diminished  the 
value  of  the  stock  until  the  true  condition  of  the  bank 
became  known.  Congress  treated  so  grave  a  matter  justly; 
for,  after  making  an  investigation  of  its  affairs,  the  House 
voted,  by  109  to  46,  "  that  the  government  deposits  may, 
in  the  opinion  of  the  House,  be  safely  continued  in  the 
Bank  of  the  United  States."  McLane  was  satisfied,  and 
he  no  longer  doubted  that  the  right  policy  of  the  govern- 
ment was  to  let  the  deposits  alone.^ 

Not  so  thought  the  President.  McLane,  therefore, 
stepped  aside  ,  and  Duane  of  Pennsylvania  was  appointed 
secretary,  who,  the  President  supposed,  would  be  a  supple 
tool  for  effecting  their  removal.  But  in  Duane  the  Presi- 
dent found  a  very  "  refractory  subordinate."  Four  mem- 
bers of  the  cabinet  were,  indeed,  on  Duane's  side :  but 
then  he  sorrowfully  learned  that  the  cabinet  was  not  the 
real  advisory  board  of  the  President  ;  there  was  still 
another,   termed   the    "  kitchen-cabinet,"  which  was   the 

1  Gordon's  War  on  the  Bank  of  U.  S.,  p.  16. 


1833.]  THE   SECOND   UNITED-STATES   BANK.  3-37 

moving  power.  The  legally  formed  cabinet  had  a  nomi- 
nal existence.  It  was  a  kind  of  dummy  body.  Duane 
soon  learned  what  the  President  expected  of  him.  The 
secretary  tried  to  convince  the  President  of  the  impolicv 
and  injustice  of  removing  the  deposits,  but  in  vain. 
Jackson  possessed  an  indomitable  will,  which  towered 
very  high  above  his  knowledge,  especially  of  many  public 
questions.  He  was  now  straining  every  fibre  to  destroy 
the  prosperity  of  the  country,  and  knew  it  not,  or  else 
did  not  care.  If  so,  his  sin  was  still  less  pardonable.  He 
knew  perfectly  well  that  Congress  was  opposed  to  the 
removal  of  the  deposits,  and  so  were  the  people,  and  that 
grave  consequences  were  feared  if  the  event  occurred. 
But  Jackson  was  as  unmoved  by  the  popular  fury  that 
raged  against  him  as  the  Rock  of  Gibraltar  is  by  the 
winds  which  whistle  around  it.  Finding  that  Duane 
would  not  remove  them,  he  removed  Duane,  and  ap- 
pointed in  his  place  Taney,  who  had  previously  written  a 
letter  for  the  President,  giving  reasons  in  favor  of  their 
removal.^  No  arrangement  had  been  made  with  the  State 
banks ;  yet  the  President,  through  his  secretary,  did  not 
hesitate  to  plunge  the  fiscal  operations  of  the  country 
into  the  dreaded  gulf  of  confusion  and  uncertainty,  at  a 
time  when  they  were  conducted  by  the  legitimate  agent 
of  the  government  with  the  utmost  simplicity,  safety,  antl 
despatch.^ 

1  Narrative  and  Correspondence  concerning  the  Removal  of  tlie  De- 
posits. This  work  was  prepared  by  Duane  himself,  who  published  two 
hundred  and  fifty  copies,  and  sent  them  to  his  friends.  It  is  composed 
largely  of  letters  that  passed  between  the  President  and  himself.  It  is  a 
painful  exposure  of  the  President's  conduct. 

2  Gordon,  p.  37. 


338      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1833. 

The  sensation  produced  by  this  extraordinary  act  in 
commercial,  financial,  and  business  circles  in  every  part 
of  the  United  States,  was  unprecedented.  The  banks 
everywhere,  but  especially  in  the  commercial  cities,  were 
compelled  to  call  in  their  loans,  and  curtail  their  circula- 
tion ;  trade  and  commerce  became  embarrassed ;  distrust 
and  uncertainty  prevailed,  putting  a  stop  to  enterprise  ; 
almost  every  product  was  reduced  in  value,  and  was  un- 
salable ;  manufactures  were  checked,  laborers  thrown  out 
of  employment,  failures  and  bankruptcies  were  of  daily 
occurrence;  and  general  financial  distress  pervaded  the 
country.^ 

Removed  by  wish  of  the  President,  and  contrary  to  the 
well-known  wish  of  the  people  and  the  clearly  expressed 
judgment  of  both  Houses  of  Congress,  the  entire  business 
of  the  land  was  fearfully  shaken  by  the  event,  as  by  a 
tremendous  earthquake,  from  which  it  did  not  recover 
for  many  a  year. 

The  bank,  having  been  deprived  of  the  public  funds, 
could  protect  itself  only  by  curtailing  its  discounts;  and 
this  action  intensified  the  prevailing  commercial  distress. 

At  the  opening  of  the  next  session  of  Congress,  Taney 
communicated  a  special  report  on  the  subject.^  Declaring 
that  by  the  usage  and  practice  of  the  government  the 
power  of  removal  was  intended  to  be  reserved  exclusivel}' 
to  the  secretary  of  the  treasury,  and  that  the  exercise 
of  this  power  did  not  depend  merely  on  the  safety  of  the 
public  money  in  the  possession  of  the  bank,  nor  on  the 
fidelity  with   which   it   conducted   itself,   but   rather   on 

1  Sargent's  Public  Men  and  Events,  vol.  i.  p.  256. 

2  December,  1833. 


1833.]  THK    SECOND    UNITED-STATES    BANK.  339 

the  promotion  of  the  public  interest  and  convenience,  he 
then  stated  the  reasons  which  induced  him  "  to  believe 
that  it  was  necessary,  for  the  interest  and  convenience 
of  the  people,  that  the  Bank  of  the  United  States  should 
cease  to  be  a  depository  of  public  money." 

Assuming  that  a  new  charter  would  not  be  granted  to 
the  bank,  it  was  "  obvious  that  the  interests  of  the  coun- 
try would  not  be  promoted  by  permitting  the  deposits  of 
the  public  money  to  continue  there  until  its  charter  ex- 
pired." 

It  was  "  well  understood  that  the  superior  credit  hereto- 
fore enjoyed  by  the  notes  of  the  bank  was  not  founded 
on  any  particular  confidence  in  its  management  or  solid- 
ity :  it  was  occasioned  altogether  by  the  agreement  on 
behalf  of  the  public,  in  the  Act  of  incorporation,  to  re- 
ceive them  in  all  payments  to  the  United  States  ;  and  it 
was  this  pledge,  on  the  part  of  the  government,  which  gave 
general  currency  to  the  notes  payable  at  remote  branches." 
This  obligation  on  the  part  of  the  government  would  cease 
the  8d  of  March,  1836,  when  the  charter  of  the  bank  ex- 
pired. When  this  event  happened,  its  outstanding  notes 
would  lose  their  peculiar  value,  and  those  pa^-able  at  dis- 
tant places  would  become  as  much  depreciated  as  the 
notes  of  local  banks.  If,  in  the  mean  time,  no  other  cur- 
rency were  substituted  in  their  place,  it  was  easy  to  foresee 
the  extent  of  the  embarrassment  which  would  be  caused 
by  the  sudden  derangement  of  the  circulating  medium. 
He  had  "  no  doubt "  that  the  State  banks  could  furnish 
a  general  circulating  medium,  quite  as  uniform  in  value  as 
that  which  had  been  afforded  by  the  Bank  of  the  United 
States,  "  probably  more  so  ; "  but  the  substitution  could 


340      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1834. 

not  be  made  at  the  same  moment  in  every  part  of  the 
Union.  It  was  "  essential  that  the  change  should  be 
gradual;  and  sufficient  time  should  be  allowed  to  suffer  it 
to  make  its  way  by  the  ordinary  operations  of  commerce, 
without  requiring  a  hasty  and  violent  effort." 

Another  reason  for  removing  them  was  the  conduct  of 
the  bank  in  rapidly  curtailing  its  discounts  a  few  months 
prior  to  making  his  report.  He  then  sought  to  show  how 
the  institution  had  concealed  its  mode  of  doing  business 
from  the  government  directors,  "regardless  of  the  duties 
of  its  agency ; "  that  its  own  interest  was  "  its  ruling 
principle,"  while  the  just  claims  of  the  public  were  treated 
with  but  little  regard ;  and  that  there  was  "  sufficient  evi- 
dence to  prove  that  the  bank  had  used  its  means  with  a 
view  to  obtain  political  power,  and  thereby  secure  the 
renewal  of  its  charter." 

Congress  deemed  the  secretary's  reasons  for  removing 
the  deposits  insufficient.  Nor  did  the  opinion  of  the  peo- 
ple differ  from  the  opinion  of  the  majority  of  Congress. 
The  "  Union  Committee,"  appointed  by  merchants  and 
others  of  New  York  to  express  their  views  respecting 
the  matter,  exposed  the  weakness  of  Taney's  reasoning. 
Albert  Gallatin,  whose  very  acute  knowledge  of  finance 
has  never  been  surpassed,  if  equalled,  by  any  American 
financier,  was  chairman,  and  drew  the  report.^ 

With  respect  to  the  first  reason  assigned  by  Taney  for 
removing  the  deposits,  —  that  "  the  public  deposits  would 
always  amount  to  several  millions  of  dollars,  and  that  it 
would  evidently  produce  serious  inconvenience  if  such  a 
large  sum  were  left  in  possession  of  the  bank  until  the 

1  New  York,  1834. 


1834.]  THE   SECOND    UNITED-STATES   BANK.  341 

last  moment  of  its  existence,  and  then  be  suddenly  with- 
drawn, when  its  immense  circulation  would  be  returniucr 
upon  it  to  be  redeemed,  and  its  private  depositors  remov- 
ing their  funds  into  other  institutions,"  —  the  committee 
remarked  that  no  inconvenience  was  felt  in  March,  1811, 
when  the  charter  of  the  former  United-States  bank  ex- 
pired; although  the  deposits  there,  the  first  of  the  year, 
exceeded  six  millions,  and,  on  the  day  when  the  charter 
ceased,  amounted  to  two  and  a  half  million  dollars.  But 
Taney,  in  his  annual  report  on  finances,  had  estimated 
"  the  balance  that  would  be  left  in  the  treasury  (that  is 
to  say,  the  whole  amount  of  the  public  deposits)  on  the 
31st  of  December,  1834,  at  less  than  three  millions  of  dol- 
lars, and  that  the  receipts  of  1835  would  be  less  than 
those  of  1834."  —  "This  single  fact,"  add  the  committee, 
"  thus  officially  announced,  —  the  natural  and  gradual  re- 
duction of  the  public  deposits,  in  the  course  of  the  present 
year,  to  less  than  three  millions  of  dollars, — refutes  all 
the  arguments,  of  every  description,  urged  in  justification 
of  that  measure." 

The  committee  contended  that  the  superior  credit  en- 
joyed by  the  notes  of  the  Bank  of  the  United  States  was 
due  principally  to  the  general  confidence  in  its  manage- 
ment and  solidity.  At  the  expiration  of  its  charter,  the 
notes  of  interior  branches,  if  found  at  the  seaports,  might 
depreciate,  unless  the  bank,  which  was  probable,  "  should 
find  it  their  interest  to  pay  them  wherever  presented." 
The  obvious  mode  to  lessen  the  gross  amount  of  these 
notes  was  a  repeal  of  the  law  making  them  receivable 
in  payment  of  debts  due  to  the  government.  The  removal 
of  the  public  deposits  could  have  no  effect  on  the  circula- 


342      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1834. 

tion  of  the  notes  of  the  bank.  In  truth,  the  amount  for 
several  months  after  that  event  was  somewhat  increased. 

The  curtailment  of  discounts  "  was  a  necessary  conse- 
quence of  the  withdrawing  of  the  public  deposits."  "  The 
author  of  this  measure,"  say  the  committee,  "is  respon- 
sible for  all  the  effects  that  may  have  flowed  from  the 
curtailments.  It  is  idle  to  say  that  they  have  been  greater 
than  was  expected,  or  made  at  a  different  time,  or  in  a 
different  manner,  from  what  had  been  anticipated.  If  it 
were  impossible  for  the  Executive,  or  for  any  human  being, 
to  foresee  what  the  bank,  under  those  circumstances, 
might  be  compelled  or  inclined  to  do,  and  the  effects  which 
its  acts  might  have  on  the  currency  and  commerce  of  the 
country,  —  that  was  a  sufficient  reason  for  not  adopting 
with  precipitation  a  measure  in  itself  wholly  unnecessary. 
But,  if  there  is  an  excuse  for  want  of  foresight,  no  apology 
can  be  found  for  obstinately  persevering  in  an  erroneous 
course  after  the  error  had  been  discovered,  and  the  fatal 
effects  of  the  measure  had  become  undeniable." 

It  is  worthy  of  note,  too,  at  the  very  time  when  the 
curtailment  of  discounts  by  the  bank  was  alleged  as  a 
cause  for  the  removal  of  the  public  deposits,  Taney  did 
this,  so  he  himself  declares,  to  cause  the  retiring  of  the 
notes  of  the  bank,  the  inevitable  effect  of  which  move- 
ment was  to  contract  discounts  still  more.  Thus  he 
sought  to  have  the  bank  do  the  very  thing  of  whicli  he 
accused  it.  He  compelled  the  institution  to  curtail  dis- 
counts, and  then  most  unjustly  blamed  it  for  so  doing. 
The  fairest  construction,  perhaps,  to  put  on  Taney's 
conduct  is,  that  he  did  not  comprehend  what  he  was 
about,  nor  the    consequences   of  his   own  acts.     Others 


1832.]  THE   SECOND   UNITED-STATES    BANK.  343 

comprehended  them  clearly  enough,  but  he  was  finan- 
cially blind. 

Having  been  removed,  Congress  could  not  order  tlie 
secretary  to  restore  the  deposits  to  the  bank.  Jackson 
was  not  the  man  to  turn  back,  whatever  might  be  the 
consequences  of  standing  still  or  of  going  forward.  Not- 
withstanding the  loss  and  distress  into  which  he  plunged 
his  country,  there  was  no  relenting. 

A  few  months  before  the  presidential  election  in  1832, 
the  bank  put  forth  a  tremendous  effort  to  renew  its 
charter.  A  renewal  was  granted  by  both  Houses,  but 
the  bill  was  vetoed.  It  could  not  be  passed  over  the 
veto,  and  thus  the  fate  of  the  bank  was  determined.^ 

During  the  discussion  of  the  veto  in  the  Senate,  Mr. 
Clayton  ^  of  Delaware  uttered  the  following  remarkable 
prophecy :  "  In  less  than  four  years,  the  pecuniary  distress, 
the  commercial  embarrassments,  consequent  upon  the  de- 
struction of  the  United-States  bank,  must  exceed  any  thing 
which  has  ever  been  known  in  our  history.  .  .  .  The  de- 
preciation of  paper  operates  as  a  tax  on  the  farmer,  the 
mechanic,  and  all  the  consumers  of  merchandise,  to  its 
whole  amount.     The  loss  of  confidence  among  men ;  the 

1  Soon  after  the  President's  veto,  Ingham,  Jackson's  first  secretary  of 
the  treasury,  wrote:  "The  bank  has  purified  one  of  the  worst  currencies 
that  ever  infested  any  country  or  people.  It  consisted  of  mere  paper,  of 
no  definite  value,  accompanied  by  worthless  tickets,  issued  from  broken 
banks,  petty  corporations,  and  partnerships,  in  almost  every  village.  In- 
stead of  this,  the  United-States  bank  has  given  us  the  best  currency  known 
among  nations.  It  supplies  a  medium  equal  in  value  to  gold  and  silver 
in  evlry  part  of  the  Union.  ...  Yet  Gen.  Jackson  would  destroy  this 
institution,  and  expose  the  country  to  all  the  evils  from  which  it  has  so 
happily  but  just  recovered." 

2  July  11,  Coug.  Debates,  vol.  viii.  Part  I,  p.  126* 


344      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1836. 

total  derangement  of  that  admirable  system  of  exchanges 
which  is  now  acknowledged  to  be  better  than  exists  in 
any  other  country  on  the  globe ;  overtrading  and  specu- 
lation on  false  capital  in  every  part  of  the  country ;  that 
rapid  fluctuation  in  the  standard  of  value  for  money, 
which,  like  the  unseen  pestilence,  withers  all  the  efforts 
of  industry,  while  the  sufferer  is  in  utter  ignorance  of  the 
cause  of  his  destruction ;  bankruptcies  and  ruin,  at  the 
anticipation  of  which  the  heart  sickens,  —  must  follow  in 
the  long  train  of  evils  which  are  assuredly  before  us." 

The  dejoosits  having  been  removed,  and  a  renewal  of 
the  charter  refused,  the  good  feeling  which  had  hitherto 
existed  between  the  bank  and  the  government  ceased. 
They  were  no  longer  friends,  but  enemies.  The  bank 
would  not  allow  the  officers  of  the  government  to  inspect 
its  books,  nor  to  interfere  in  its  affairs.  It  declined  to 
comply  with  the  order  of  the  secretary  of  war  to  deliver 
the  books,  papers,  and  funds  connected  with  the  disburse- 
ments to  officers  and  soldiers  of  the  Revolutionary  war. 
Again  and  again  did  the  bank  refuse  to  allow  the  govern- 
ment directors  to  participate  in  its  business;  and  a  special 
committee,  who  were  appointed  to  investigate  its  affairs 
in  April,  1836,  were  very  unfairly  treated. 

It  procured  a  charter  from  the  State,  and  continued  to 
do  business  as  a  State  institution,  but  re-issued  the  notes 
of  the  old  bank,  and  declined  to  settle  with  the  govern- 
ment. The  new  bank  voluntarily  assumed  all  the  obliga- 
tions of  the  former  bank :  on  the  other  hand,  it  took  all 
the  government  stock.  Thus  it  was  somewhat  peculiar 
with  respect  to  its  capital  and  obligations.  It  was  simply 
the  old  bank  transformed  into  a  new  one ;  or,  rather,  it 


1836.]  THE   SECOND   UNITED-STATES    BANK.  345 

was  the  old  bank  acting  under  State  instead  of  national 
authority. 

The  value  of  the  government  stock  at  this  time  was 
$7,583,698.59;  the  par  value,  $7,000,000.  The  commis- 
sioners who  were  appointed  by  the  secretary  of  the  treasury 
to  investigate  the  matter  appraised  the  stock  at  $8,110,- 
215.09,  which,  tliey  declared,  was  at  the  disposal  of  a  few 
bank  directors,  of  whom  the  people  knew  nothing.  "  The 
people's  money  is  thus  seized  upon,  and  detained,  for  the 
purpose  of  redeeming  notes  over  and  over  again,  re- 
issued in  violation  of  law,  and  obligations  voluntarily  as- 
sumed." On  March  3,  1836,  the  bank  stood  thus :  notes 
in  circulation,  $21,109,352.23 ;  specie,  $5,595,077.25  ;  and, 
in  November,  notes  in  circulation,  $9,733,032.28 ;  specie, 
$3,275,292.36,  —  a  reduction  of  nearly  one-half  in  specie, 
and  more  than  one-half  in  circulation ;  although,  in  the 
mean  time,  it  had  contracted  a  loan  in  Europe  of  $6,788,- 
194.44,  and  its  liabilities  were  equal  to  its  entire  resources. 
After  that  time  its  business  and  specie  still  further  dwin- 
dled ;  and  an  investigating  committee  predicted  that  if  the 
redeemed  notes  of  the  expired  corporation  continued  to  be 
re-issued,  as  they  had  been,  in  a  few  months  the  wluile 
resources  out  of  which  the  claim  of  the  government  ought 
to  be  paid  would  be  "  abstracted,  and  an  entirely  different 
responsibility  substituted,  and  one  of  a  very  doubtful 
character." 

The  remedy  proposed  was,  that  until  the  notes  of  the  old 
bank,  returned  after  the  8d  of  March,  were  redeemed  and 
not  re-issued,  and  the  amount  due  to  the  government  was 
settled  to  the  satisfaction  of  the  secretary  of  the  treasury, 
the  notes  of  the  Bank  of  the  United  States,  and  those  of 


346      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1833. 

the  new  one,  should  not  be  received  in  payment  of  debts 
due  to  the  government.^  The  bank  finally  made  a  prop- 
osition for  settling  the  government  claim,  which  was 
accepted,  and  duly  executed.^ 

When  the  deposits  were  removed  from  the  United- 
States  bank,  the  secretary  of  the  treasury  placed  them  in 
State  banks,  which  were  called  "Pet  Banks."  These  in- 
stitutions were  directed  by  the  secretary  of  the  treasury 
to  make  liberal  discounts,  in  order  to  relieve  the  strin- 
gency of  the  market  caused  by  the  new  policy  of  curtail- 
ing discounts,  which  the  Bank  of  the  United  States  was 
obliged  to  adopt.  This  direction  was  hardly  needed ;  for 
their  desire  to  earn  fat  dividends  led  them  to  increase 
their  discounts  rapidly,  and  paper  money  became  more 
abundant  than  ever.  New  banks,  too,  had  been  chartered 
in  every  direction,  in  expectation  of  the  refusal  of  Con- 
gress and  the  Executive  to  renew  the  charter  of  the 
United-States  bank.  At  the  opening  of  1830  the  aggre- 
gate capital  of  the  banks  in  the  country  was  $145,192,- 
268,  and  their  deposits  were  $55,559,928,  —  a  total  of 
$200,752,196.  Their  loans  and  discounts  at  the  same 
period  were  $200,451,214,  approaching  very  nearly  the 
aggregate  amount  of  capital  and  deposits.  Eight  years 
afterward  the  aggregate  capital  of  the  banks  was  $290,- 
772,091,  and  their  deposits  were  $127,397,185,  —  a  total 
of  $418,169,276.  Their  loans  and  discounts  at  the  same 
period  were  $525,115,702,  or  more  than  twice  the  amount 
of  loans  in  1830,  and  exceeding  the  aggregate  amount  of 
capital  and  deposits  $156,946,426.3    Said  Hugh  A.  Garland 

1  Report  No.  272,  Feb.  22,  1837,  24  Cong.,  second  session. 

2  Act,  March  3,  1837,  24  Cong.,  second  session,  Res.  5. 
8  Dem.  Rev.,  vol.  xii.  p.  426. 


1834.]  THE   SECOND   UNITED-STATES    BANK.  347 

of  Virginia,!  u  The  State  banks,  within  a  few  years,  nearly 
double'd  their  original  number,  were  greatly  enlarged  in 
their  powers  and  nominal  resources,  and  made  to  pour 
forth  with  prodigal  hand  their  spurious  issues  of  paper 
money,  — those   pictured   shadows,   that  bewildered   the 
brain^  intoxicated    the   hearts  of  the   people,  and  drove 
them  into  the  maddest  schemes  of  speculation  and  extrav- 
agance.    Never  did  any  nation,  in  the  same  space  of  time, 
make  more  rapid  advances  in  degeneracy,  or  approach 
nearer  a  total  abandonment  of  that  great  moral  law  which 
constitutes  the  well-being  of  all  civil  society,  and  a  sub- 
stitution  in   its   place   of  those   time-serving   expedients 
of  interest  and   selfishness  which   never  fail   to  end   in 
fraud,  oppression,  and  ruin." 

There  were  those,  even  among  the  President's  strongest 
adherents,  who  saw  the  danger  of  issuing  bank-notes  with- 
out any  restriction.     In  the  summer  of  1834  a  bill  was 
enacted,^  providing  for  a  re-adjustment  of  the  value  ot 
gold  and  silver  money;  and  Benton  and  others  confidently 
believed  that  specie  would  once  more  circulate.     -The 
Washington  Globe,"  which  was  the  leading  organ  ot  the 
administration,  indulged  in  the  following  strain  ot  ecstatic 
prophecy:     '^A  great  stream  of  gold   will  tiow  up   the 
Mississippi  River  from  New  Orleans,  and  diffuse  itseli  all 
over  the  great  West.     Nearly  all  the  gold  coinage  ot  the 
New  World  will  come  to  the  United  States.     This  will  fill 
the  West  with  doubloons  and  half-joes;  and,  in  eight  or 
nine  months  from  this  time,^  every  substantial  citizen  wdl 

X  An  oration  doUv.-roa  in  New  York,  in  1S40.  on  tho  Passage  of  the 
Imlepen.lent  Treasnry  Hill,  p.  25. 

.  June  'iS.    See  Tart  UL.  chap.  2,  on  Coinage.  «  jub  10.  18^. 


348      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1836. 

have  a  long  silken  purse  of  fine  open  net-work,  through 
the  interstices  of  which  the  yellow  gold  will  shine  and 
glisten.  Every  substantial  man,  and  every  substantial 
man's  wife  and  daughter,  will  travel  upon  gold.  The 
satellites  of  the  bank  alone,  to  show  their  fidelity  to  their 
liege  monarch,  will  repine  at  the  loss  of  paper."  "  Benton 
mint-drops  "  or  "  Jackson  yellow-boys "  were  coined  in 
considerable  quantities ;  but  not  many  of  them  ever  shone 
through  "  the  interstices "  of  the  "  silken  purses "  of 
"  substantial  "  or  any  other  kind  of  citizens. 

This  vast  increase  of  banking  accommodations  led  to 
speculations  of  the  wildest  character,  and  planned  on  the 
grandest  scale.  One  form  of  speculation  was  in  buying 
government  lands.  To  check  it,  a  resolution  was  intro- 
duced into  the  Senate,  requiring  payment  to  be  made  in 
gold  and  silver,  which,  however,  was  rejected.  The  sec- 
retary of  the  treasury  then  issued  a  circular,  known  after- 
ward as  the  "specie  circular,"  requiring  payment  to  be 
made  in  the  precious  metals.  This  circular  was  drawn 
by  direction  of  the  President,  beside  whom.  Senator  Ben- 
ton and  Mr.  Woodbury  (the  secretary  of  the  treasury) 
were  chiefly  instrumental  in  preparing  and  applying  the 
remedy. 

The  "  circular  "  set  forth,  that  in  consequence  of  com- 
plaints which  had  been  made  of  frauds,  speculations, 
and  monopolies,  in  the  purchase  of  public  lands,  and 
of  the  aid  given  to  effect  these  objects  by  excessive 
bank-credits,  .and  other  facilities  furnished  by  the 
banks,  after  the  fifteenth  day  of  August,^  nothing  but 
gold  and  silver,  and  in  proper  cases  Virginia  land-scrip, 
1  The  circular  was  dated  July  11, 1836. 


1836.]  THE   SFX'OND    UNITED-STATES    I5ANK.  349 

would  be  received  in  payment  for  public  lands.  But 
an  actual  settler,  or  a  bona  fide  resident  of  the  State 
where  land-sales  occurred,  was  permitted  to  pay,  as 
heretofore,   in   bank-bills. 

The  measure  immediately  excited  general  alarm. 
Banks  were  frightened,  and  refused  to  grant  further 
accommodations,  and  called  in  their  loans  as  rapidly  as 
possible.  The  pressure  of  the  banks  was  very  great.  A 
panic  had  been  started  by  what  was  termed  another  "  ex- 
periment" with  the  currency.  A  great  revulsion  set 
in  :  property  was  sacrificed,  and  prices  marched  swiftly 
downward.  The  annual  sale  of  public  land,  which 
formerly  was  from  two  to  four  million  dollars,  had  risen 
to  twenty-five  million  dollars;  and  a  surplus  of  revenue 
had  accumulated  in  the  deposit-banks  of  twenty-five  or 
thirty  millions,  which  was  soon  to  be  distributed  among 
the  States  by  a  law  commonly  called  the  "  Distribution 
Act,"  the  bill  for  which  was  introduced  by  Henry  Clay. 

The  circular  had  a  very  different  effect  from  what  was 
intended.  It  operated  most  effectually  to  banish  gold 
and  silver.  "  These,"  said  a  trustworthy  observer  after 
the  circular  was  issued,  "  are  never  seen  at  the  West ; 
and  a  five-dollar  bill  cannot  be  changed  into  specie  in  a 
ride  of  thirty  miles." 

But  the  wealthy  speculator  from  Boston,  New  York, 
Philadelphia,  and  other  places,  easily  surmounted  the 
difficulties  raised  by  this  circular.  He  would  arrange 
with  persons  inhabiting  the  State  where  he  wished  to 
purchase  land,  and  bought  it  in  their  names.  He  needed 
no  specie,  yet  he  obtained  all  the  land  he  wanted ;  while 
others,  possessing  smaller  capital,  were  obliged  to  carry 


350      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1S37. 

specie  a  long  way,  which,  as  soon  as  paid  for  land,  flowed 
back  to  the  East.^ 

At  the  next  session  of  Congress,  a  bill  repealing  the 
circular  passed  both  Houses  by  a  large  majority ;  but  the 
President  vetoed  it,  and,  Congress  having  adjourned, 
the  bill  was  killed.  Had  Congress  remained  in  session, 
doubtless  the  bill  would  have  passed  over  the  veto. 
Tlius  the  evils  caused  by  the  circular  were  prolonged , 
the  Executive  learning  nothing,  and  determined  to  pur- 
sue his  own  way,  no  matter  how  costly  it  might  be  to 
the  business  and  happiness  of  the  country .^ 

Of  course  such  a  flood  of  paper  money  could  not  roll 
over  the  land  very  long  without  causing  injur3^  In  a  few 
months  fear  struck  into  the  people,  and  they  demanded 
specie  of  the  banks  in  exchange  for  their  notes.  This 
movement  immediately  exposed  their  hollowness,  just  as 
Oro,  the  war-god  of  Tahiti  (so  runs  the  tradition)  dis- 
closed the  hollowness  of  the  high  peaks  of  the  romantic 
island  of  Eimeo  by  hurling  his  spear  over  the  sea  at  the 
god  who  dwelt  there.  Nearly  all  the  banks  failed.  The 
people  then  realized  more  keenly  than  ever  the  loss  of 
the  United-States  bank.  Its  notes,  like  the  rivers  of 
Chaldea  when  the  empire  flourished,  were  watched  and 
kept  in  their  courses,  and  not  suffered  to  overflow  or 
work  injury,  but  to  minister  unto  the  comfort  and 
wealth  of  the  people ;  while  the  notes  of  the  State 
banks  were  like  those  rivers  after  the  empire  passed 
away,  when,  not  restrained  in  their  courses,  and  over- 
flowing   their    banks,    they    spread    over    the    country, 

1  Benton's  Thirty  Years  in  the  U.  S.  Senate,  vol.  i.  p.  676. 

2  Sargent,  vol.  i.  p.  320. 


1837.]  THE   SECOND    UNITED-STATES    HANK.  351 

causing    pestilential    swamps,  from   which  untold    injury 
arose. 

When  the  banks  went  down,  they  had  the  government 
deposits:  this  was  in  May,  1837.  Van  Buren's  adminis- 
tration was  only  two  months  old.  The  President  was  a 
warm  admirer  of  Jackson,  and  had  formally  announced 
that  he  would  continue  his  predecessor's  policy  with 
respect  to  the  management  of  the  deposits.  But  the 
"  experiment "  had  suddenly  culminated.  The  govern- 
ment deposits  were  not  in  its  control,  and  could  not  be 
regained ;  their  transfer  from  one  part  of  the  country 
to  another  had  ceased;  and  the  banks  no  longer  fur- 
nished a  paper  money  of  uniform  value.  On  the  other 
hand,  it  fluctuated  wildly :  the  bills  of  one  State  were  at 
a  discount  in  an  adjoining  State ;  and,  the  farther  away 
they  wandered  from  their  home,  the  more  they  shrank  iu 
value.  Such  was  the  inevitable  result,  clearly  foreseen 
by  many,  of  President  Jackson's  "  humble  efforts,"  to  use 
his  own  words,  "  to  restore  the  constitutional  currency  of 
gold  and  silver." 

Once  more,  therefore,  the  government  was  confronted 
with  a  grave  question  touching  its  deposits  and  the  circu- 
lating medium.  It  now  essayed  a  brand-new  experiment.' 
This  was  nothing  less  than  keeping  the  deposits  itself, 
and  transferring  and  paying  them  as  occasion  required ; 
while  the  people  were  left  to  regulate  the  currency  them- 

1  It  is  true  that  Gen.  William  F.  Gordon  of  Virginia  introduced  a  bill 
into  the  House  on  the  20th  of  June,  1834,  to  establish  the  sub-treasury  sys- 
tem; but  almost  all  of  Jackson's  friends  voted  against  it.  See  Tract  for 
the  Times,  Wash.,  1*14,  p.  4,  and  debates  iu  the  House,  Feb.  11,  18,15,  and 
afterward.    See  speech  of  Silas  Wright. 


S52      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1837. 

selves.  This  was  a  very  wide  departure  from  any  former 
policy.  The  mode  proposed  of  keeping  the  public  depos- 
its may  be  briefly  described.  The  treasury  building  at 
Washington  was  to  constitute  the  treasury  of  the  United 
States,  and  the  public  money  was  to  be  kept  within  its 
vaults.  The  mint  at  Philadelphia,  the  branch  at  New 
Orleans,  the  new  custom-houses  in  New  York  and  Boston, 
were  also  to  contain  branch  treasury  vaults.  Places  were 
also  to  be  prepared  at  Charleston,  St.  Louis,  and  else- 
where. The  treasurer  of  the  United  States  at  Washing- 
ton, and  the  treasurers  of  the  mints  at  Philadelphia  and 
New  Orleans,  were  to  be  "  receivers-general,"  to  keep  the 
public  money,  and  with  slightly  increased  salaries  for  per- 
formhig  this  additional  duty :  bonds  were  to  be  required 
for  the  faithful  performance  of  their  duties.  But  Congress 
refused  to  sanction  the  experiment.^ 

The  action  of  the  executive  department  of  the  govern- 
ment was  opposed  to  the  wishes  of  Congress  and  of  the 
country  nearly  the  whole  period  from  1833  to  1840,  with 
respect  to  the  management  of  the  deposits.  When  they 
were  withdrawn  from  the  United-States  bank  by  the  sec- 
retary of  the  treasury,  in  obedience  to  the  will  of  the 
President,  and  delivered  to  the  State  banks.  Congress  con- 
demned the  act,  and  so  did  the  country.  The  memorials 
sent  to  Congress  testify  powerfully  that  the  general  senti- 
ment of  the  people  was  opposed  to  the  course  of  the 
Executive.  Nevertheless,  the  change  was  continued  from 
October,  1833,  until  June,  1836,^  when  the  State-bank 
system   was    finally   legalized.       This    system,   however, 

1  Dem.  Rev.,  vol.  xviii.  p.  327. 

2  Act,  June  23,  24  Cong.,  first  session,  chap.  115. 


1841.]  THE   SECOND   UNITED-STATES   BANK.  353 

exploded  the  next  spring ;  and  the  Executive  ordered  the 
government  officials  to  keep  the  public  money  in  their 
own  hands.  At  the  extra  session  of  Conccress  in  1837, 
the  Executive  recommended  the  sub-treasury  experiment. 
Congress  refused  to  try  it,  although  a  majority  in  both 
Houses  belonged  to  the  same  political  party  as  the  Presi- 
dent. Nevertheless,  the  system  was  continued,  without 
legislative  sanction,  until  1840,  when  Congress  finally 
passed  a  bill  legalizing  the  measure.'  At  the  presidential 
election  in  1840,  a  party  revolution  occurred,  and  the 
sub-treasury  system,  which  had  formed  a  prominent  issue 
in  the  campaign,  was  unqualifiedly  condemned  by  the 
people.  Congress  repealed  the  law,^  and  passed  a  bill 
creating  another  national  bank.  But  in  the  mean  time 
the  President  died;  and  the  Vice-President  went  over 
to  the  party  that  had  opposed  his  election,  and  he  vetoed 
the  bill  establishing  the  bank.  Congress  sought  to  pass  a 
bill  authorizing  a  fiscal  agent,  which  it  was  supposed  the 
President  would  approve  .  but  they  were  disappointed. 
The  President  then  brought  forward  a  system  called  the 
"  exchequer  plan  ,  "  ^  but  this  Congress  would  not  accept. 
Thus  the  keeping  of  the  public  money  remained  in  the 
hands  of  the  government  officials,  without  legislative  reg- 
ulation, until  the  passage  of  the  sub-treasury  bill,  in  1846.* 

1  Act,  July  4,  26  Cong.,  first  session,  chap  41. 

2  Act,  Aug.  13,  1841,  27  Cong  ,  first  session,  chap.  7. 

8  The  plan  was  first  set  forth  in  a  special  report  by  5Ir.  Forward,  the 
secretary  of  the  treasury,  Dec.  21,  1841,  and  afterward  by  a  select  com- 
mittee. Caleb  Cushing  was  cliairman,  and  made  the  leading  report,  Feb. 
17,  1842,  No.  244,  27  Cong.,  second  session  Garret  Duvis  made  a  minority 
report,  and  John  P.  Kennedy  a  counter  report. 

*  Act,  Aug.  6,  29  Cong.,  first  session,  chap.  90. 


354      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1841. 

The  system  established  at  that  time  has  been  maintained 
ever  since,  and  is  so  deeply  rooted,  that  no  political  storm 
is  likely  to  be  powerful  enough  to  destroy  it. 

During  the  interval  from  1840  until  the  re-establishing 
of  the  sub-treasury  system,  the  secretary  of  the  treasury 
deposited  the  public  funds  with  the  banks ;  and  it  may  be 
worth  while  to  inquire  how  the  business  was  managed. 

In  New  York  there  were,  in  1841,  seven  banks  in  which 
the  government  deposits  were  kept.  Each  bank  took  all 
the  deposits  for  a  month.  This  gave  to  each  bank  a  cer- 
tain advantage  over  the  rest ;  but,  at  the  same  time,  the 
system  established  was  a  conservative  one.  The  follow- 
ing illustration  will  show  more  perfectly  the  working 
of  the  system.  The  duties  in  the  month  of  March,  1846, 
amounted  to  $2,600,000  for  the  port  of  New  York.  They 
were  paid  into  one  bank  by  all  the  others.  The  balance 
in  favor  of  that  bank  was  consequently  very  large ;  and, 
as  those  balances  were  rigorously  demanded,  the  debtor- 
banks  were  obliged  to  loan  cautiously,  while  it  enabled 
the  government  bank  to  lend  freely,  taking  advantage  of 
the  improved  value  of  money,  which  its  own  act,  operating 
through  the  other  banks,  had  created.  It  will  be  clearly 
seen,  that,  under  such  circumstances,  the  bank  would 
naturally  be  anxious  to  use  the  funds  at  its  disposal  to  the 
best  advantage.  As  the  money  might  be  called  for  at  any 
time,  stock-loans  afforded  the  readiest  means  of  employ- 
ing the  funds  profitably,  and,  at  the  same  time,  having 
them  at  command.  A  law  of  the  State  required  these 
institutions  to  make  quarterly  returns  of  their  affairs,  and 
to  state  in  the  returns  the  amount  of  stock-loans,  with  a 
view  to  checking  them.     The  banks,  however,  took  the 


1846.]  THE   SECOND    UNITED-STATES    RANK.  355 

stock  as  security,  and  a  note  payable  on  demand,  which 
was  counted  as  cash  on  hand.  Millions  of  mone}^  were 
loaned  in  this  way  to  stock  speculators,  and  reported  as 
cash  on  hand  to  the  State  comptroller.  The  general 
result,  therefore,  was,  that  under  a  "special  clause,"  as 
interpreted  by  the  banks,  their  funds,  were  withdrawn 
from  commercial  paper,  and  loaned  to  stock  speculators. 
This  mode  of  using  the  public  funds  contributed  not  a 
little  toward  the  re-adoption  of  the  treasury  system  in 
1846 ;  yet  probably  those  banks,  if  loaning  the  govern- 
ment deposits  at  all,  could  have  found  no  other  customers 
who  would  have  borrowed  them  on  the  terms  prescribed, 
and  which  were  necessary  both  for  the  safety  of  the 
lenders,  and  the  welfare  of  the  government. 

The  opposition  to  adopting  the  system  in  1840  was 
not  so  strong  as  it  had  been  in  1840.  The  danger  and 
evil  of  employing  State  banks  were  too  palpable  to  be 
longer  ignored,  and  the  opposition  to  establishing  an- 
other national  bank  was  too  great.  President  Tyler's 
exchequer  plan  fell  flat,  and  nothing  could  be  done  to 
revive  it.  The  only  thing  left  was  to  divorce  the  gov- 
ernment from  the  banks,  and  restore  the  sub-treasury 
system.^ 

The  law  re-enacted  was  defective.  The  appropriation 
for  making  safe  depositories  of  the  public  money  was 
too  small.  Though  disbursing-officers,  in  common  with 
others,  were  prohibited,  under  severe  penalties,  from  lend- 
ing or  privately  using  the  public  money,  or  depositing 
it  in  banks,  or  from  paying  to  the  public  creditors  any 
thing  but  gold  and  silver,  no  places  were  specially  pro- 

1  Dem.  Rev.,  vol.  xviii.  p.  328. 


356      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1855. 

vided  for  tliem  in  which  to  deposit  their  funds.  This  led 
to  great  irregularities.  In  not  a  few  cases  the  govern- 
ment collected  its  dues  in  gold  and  silver  for  the  benefit 
of  the  banks,  and  through  the  agency  of  its  disbursing- 
officers ;  and  the  banks  employed  by  them  paid  the  public 
creditors  with  bank-notes,  instead  of  the  legal  money  of 
the  United  States. 

Notwithstanding  the  imperfect  manner  in  which  the 
law  was  executed,  much  good  was  accomplished.  All 
receipts  for  lands,  customs,  and  other  public  dues,  were 
paid  in  gold  and  silver  and  treasury-notes ;  and  these 
were  employed  by  the  treasurer  in  making  payments. 
In  this  way  a  stream  of  gold  and  silver  was  set  in  motion, 
limited  indeed,  and  running  chiefly  from  the  public  de- 
positories to  the  bank,  and  then  returning.  But  it 
swelled  to  larger  dimensions. 

When  the  system  was  re-established,  large  loans  were 
necessary;  for  the  war  with  Mexico  was  then  raging. 
They  were  effected  without  the  agency  of  bank-notes  and 
bank-credit ;  and  all  the  important  and  fiscal  operations 
of  the  United  States  were  conducted  without  disturbing 
the  business  of  the  banks  or  of  the  merchants. 

Gouge,  who  made  a  special  report  of  the  workings  of 
the  sub-treasury  in  1855,  and  another  the  year  afterward, 
affirms  that  the  banks  would  have  expanded  their  issues 
more,  had  the  sub-treasury  system  not  been  in  existence. 
"  If  the  public  money  had  been  deposited  with  them,  they 
would  have  made  it  the  basis  of  new  issues  and  dis- 
counts. Our  importations  of  foreign  commodities  would 
have  been  much  greater  than  they  have  been,  and  the 
attempt  to  pay  for  them  would  have  drained  the  country 


1855.]  THE  SECOND   UNITED-STATES   BANK.  357 

of  its  specie.  The  constitutional  treasury  system,  and 
that  alone,  has  saved  the  country  from  scenes  of  inflation 
and  speculation,  such  as  we  had  in  1835  and  1836,  which 
would  necessarily  have  been  followed  by  scenes  of  dis- 
tress and  disaster,  such  as  we  had  from  1837  to  1843." 
This  is  admitted  by  many  who  were  once  the  active  op- 
ponents of  the  system. 

At  the  same  time  Gouge  ^  answered  the  objection  touch- 
ing the  unproductiveness  of  the  money  in  the  treasury 
offices.  The  same  thing,  he  declared,  might  be  said  of  the 
goods  in  the  warehouses  of  the  merchants,  or  the  grain  in 
the  granaries  of  the  farmers.  In  such  a  country  as  ours, 
there  ought  to  be  somewhere  a  reserved  fund  of  gold  and 
silver ;  and  no  more  appropriate  place  could  be  found  for 
such  a  reservoir  than  the  United-States  treasur3^ 

One  evil  arising  from  the  system,  related  to  the  man- 
ner of  transferring  the  public  funds.  One  mode  was  to 
transfer  siDccie  from  one  place  to  another,  as  the  case 
required  ;  but  this  involved  time,  risk,  and  expense.  An- 
other mode  was  to  transfer  drafts  to  bankers,  brokers, 
and  others,  and  allow  them  the  use  of  the  money  for 
such  time  as  would  be  regarded  a  compensation  for  the 
expense  of  transporting  specie  from  one  depository  to 
another ;  but  losses  occurred  under  this  system,  and  it 
also  gave  rise  to  favoritism.  By  properly  timing  the 
transfer-drafts,  so  that  one  should  lap  upon  another, 
the  permanent  use  of  public  money  was  given  to  official 
favorites.  Thus  there  was  a  constant  temptation  to  make 
these  transfers,  even  when  not  needed  for  the  public  ser- 

1  See  Gouge's  Reports,  1855,  185G,  Bank  Mag.  vol.  ix.  p.  625;  Ibid., 
vol.  X.  p.  609. 


358      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1855. 

vice.  Under  this  system  of  credit  transfers,  Gouge  re- 
ported that  the  monthly  statements  appeared  to  be  about 
three  times  as  great  as  they  were  under  the  previous  cash 
system.  Under  that,  the  transfers  to  New  Orleans  were 
about  $38,000  a  month :  under  the  credit  system,  they 
swelled  to  f227,000.  In  like  manner  they  were  increased 
at  Washington  City  from  $135,000  to  $225,000  a  month. 
In  1854,  however,  this  evil  was  corrected.  All  persons 
who  had  been  employed  to  make  transfers  on  time  were 
required  to  pay ,  and  in  the  end  the  government  sus- 
tained no  very  heavy  losses.  Three  years  afterward  all 
disbursing  officers  were  required  to  deposit  the  money 
intrusted  to  them  with  the  treasurer,  or  an  assistant 
treasurer,  of  the  United  States,  and  "to  draw  therefor 
the  sum  only  in  favor  of  the  person  to  whom  payment" 
was  to  be  made,  except  for  sums  less  than  twenty  dollars. 


1816.]  TARIFF  LEGISLATION.  359 


CHAPTER  III. 

TARIFF  LEGISLATION. 
1816-1824. 

Immediately  after  declaring  peace,  foreign  goods  in 
vast  quantities  were  sent  to  our  shore.  Though  a  heavy 
duty  was  levied  on  them,  it  formed  a  barrier  not  more 
effective  in  checking  their  importation  than  does  a  stone 
in  retarding  the  movement  of  a  stream  greatly  swollen  by 
heavy  rains.  These  goods  were  sent  here  by  two  classes 
of  persons,  induced  or  impelled  by  different  motives. 
One  class  was  composed  of  speculators,  who  sent  vast 
quantities  of  goods  to  many  quarters  of  the  globe,  expect- 
ing to  realize  enormous  gains  from  their  ventures.  Much 
of  the  merchandise  now  coming  to  America  was  shipped 
by  them.  The  losses  incurred  in  many  of  these  ventures 
were  enormous.  Lord  Brougham,  when  describing  the 
distress  of  Great  Britain  in  1816,  remarked  that  he  was 
very  far  from  placing  the  vast  exports  which  the  peace 
with  America  had  occasioned  "  upon  the  same  footing 
with  those  to  the  European  market  the  year  before,  both 
because  ultimately  the  Americans  will  pay,  which  the 
exhausted  state  of  the  Continent  renders  very  unlikely, 
and  because  it  was  well  worth  while  to  incur  a  loss  upon 
the  first  exportation,  in  order,  by  the  glut,  to  stifle  in  the 


360      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1816. 

cradle  those  rising  manufactures  in  the  United  States 
which  the  war  had  forced  into  existence,  contrary  to  the 
natural  course  of  things."  ^  Notes  having  been  given  by 
the  speculators  for  the  larger  portion  of  their  goods,  they 
could  not  be  kept  very  long,  and  consequently  were 
forced  on  the  market.  A  great  many  manufacturers, 
too,  in  order  to  meet  their  obligations,  were  obliged  to 
send  their  products  here,  and  sell  them  for  what  they 
would  fetch.  Vast  quantities  were  sold  at  auction,  prices 
fell,  and  the  American  manufacturer's  vision  of  wealth 
suddenly  vanished.  His  day  of  prosperity  had  been  brief, 
—  only  an  arctic  summer.  His  future  was  filled  with 
darkness  and  fear.^ 

Congress,  manufacturers,  and  the  people  generally,  un- 
derstood these  things  before  attempting  to  revise  the 
war-duties.  Yet  having  been  laid  for  a  temporary  end, 
it  was  necessary  to  revise  them.  Congress  referred  the 
subject  to  the  secretary  of  the  treasury,  Dallas,  who 
reported  at  the  Decemt)er  session  in  1816.  He  said  that 
tliree  objects  ought  to  be  kept  in  view;  first,  of  raising, 
b}^  duties  on  imports  and  tonnage,  the  proportion  of  public 
revenue  which  must  be  drawn  from  that  source,  sec- 
ondly, of  conciliating  the  various  national  interests,  — 
agriculture,  manufactures,  trade,  and  navigation,  and, 
lastly,  of  rendering  the  collection  of  the  duties  conven- 
ient, equal,  and  certain. 

The  amount  recommended  by  the  Committee  of  Ways 
and  Means  to  be  raised  from  imports,  was  adopted  by 
Dallas  as  the  basis  of  his  estimate.     The   amount  was 

1  Hansard's  Pari.  Debates,  first  series,  vol.  xxxlii.  p.  1099. 

2  Report  of  Com.  on  Manufactures,  N.  Y.  Leg.,  1817,  12  Niles,  p.  235 


1816.]  TAEIFF   LEGISLATION.  361 

$17,040,000.  The  addition  proposed  to  the  duties  exist- 
ing prior  to  the  Act  of  July,  1812,  was  an  average  rate 
of  forty-two  per  cent.  The  whole  amount  of  revenue 
required  was  fixed  at  $24,000,000 ;  and  the  balance  was 
to  come  from  internal  sources. 

Dallas  declared  there  were  but  few,  if  any,  govern- 
ments which  did  not  regard  the  establishment  of  domestic 
manufactures  a  chief  object  of  public  policy.  The  United 
States  had  always  thus  regarded  it.  There  were  those, 
indeed,  who  contended,  that,  in  applying  industry  to  man- 
ufactures and  commerce,  all  should  be  left  to  pursue  their 
own  course,  untouched  by  the  hand  of  the  government. 
Without  examining  how  far  this  opinion  was  sanctioned 
by  experience,  Dallas  remarked  that  American  manufac- 
tures, particularly  those  which  had  been  introduced  during 
the  restrictive  system  and  the  war,  owed  their  existence 
exclusively  to  the  capital  and  the  skill,  the  enterprise  and 
the  industry,  of  private  citizens.  The  demands  of  the 
country,  while  the  acquisition  of  supplies  from  foreign 
nations  was  either  prohibited  or  impracticable,  might 
have  afforded  a  sufficient  inducement  for  the  investment 
of  capital,  and  this  application  of  labor ;  but  "  the  in- 
ducement in  its  necessary  extent "  must  fail,  he  declared, 
when  the  day  of  competition  returned.  The  preservation 
of  the  manufactures,  which  private  citizens,  under  favor- 
able auspices,  had  constituted  the  property  of  the  nation, 
became  a  consideration  of  general  policjs  to  be  resolved 
by  a  recollection  of  past  embarrassments,  bj'-  the  certainty 
of  an  increased  difficulty  of  re-instating  upon  any  emer- 
gency the  manufactures  which  should  be  allowed  to  per- 
ish,  and  by   a  just   sense   of  the  influence   of  domestic 


362      FINANCIAL  HISTOKY  OF  THE  UNITED  STATES.       [1816. 

manufactures  upon  the  wealth,  power,  and  independence 
of  the  government.^ 

Such  were  the  weightier  thoughts  of  Dallas,  who  was 
now  one  of  the  foremost  men  in  the  republic.  The 
majority  of  the  Committee  of  Ways  and  Means  agreed 
with  him  ;  and  accordingly,  in  March,  the  chairman,  Mr. 
Lowndes,  reported  a  bill  to  regulate  the  duties  on  imports 
and  tonnage.  Mr.  Clay,  for  the  first  time,  appeared  as  the 
advocate  of  "  a  thorough  and  decided  protection  to  home 
manufactures  by  ample  duties."  The  debate  in  the  com- 
mittee of  the  whole  began  the  20th  of  March,  and  con- 
tinued until  the  8th  of  April.  Many  speeches  were 
delivered.  Numerous  amendments  were  offered,  and 
several  were  adopted.  Some  of  these  amendments  were 
for  increasing  the  tariff,  and  others  for  diminishing  it. 
Randolph  was  opposed  to  promoting  the  growth  of 
manufacturing  establishments  to  the  extent  and  in  the 
manner  proposed  by  the  bill,  and  offered  a  motion  strik- 
ing out  the  minimum  duty  of  twenty-five  cents  a  square 
yard  on  cotton  goods.  Calhoun  replied  to  him,  and  re- 
marked that  the  debate  assumed  a  new  aspect  from  Ran- 
dolph's motion,  as  it  was  introduced  professedly  on  the 
ground  that  manufactures  ought  not  to  receive  any 
encouragement.  He  considered  the  subject  before  the 
House  to  be  one  that  was  connected  with  the  security 
of  the  country.  The  security  of  a  country  depended  on 
its  spirit  and  its  means  ;  and,  modified  as  the  industry  of 
the  country  then  was,  its  moneyed  resources  must,  to  a 
great  extent,  fail  whenever  it  had  the  misfortune  to  be 
involved  in  war  with  a  power  dominant  upon  the  ocean. 

1  3  Finance,  p.  85. 


Igl6.]  TARIFF   LEGISLATION.  363 

It  must  ever  be  considered  the  plain  dictate  of  wisdom, 
In  peace  prepare  for  war.    What,  then,  were  the  resources 
of  this  country,  and  what  were  the  effects  of  war  upon 
them?     Commerce  and  agriculture,  till  lately  almost  the 
only,  still  constituted  the  principal,  sources  of  our  wealth. 
So\ong  as  these  were  Aot  interrupted,  the  country  pros- 
pered;" but   war,   as   we   were   now   circumstanced,   was 
equally  destructive  to  both,  since  both  depended  on  for- 
eign markets,  from  which  we  were  cut  off  as  soon  as  we 
became  involved  in  war  with  a  maritime  power. 

Sectional  and  local  interests  were  the  centres  around 
which  spun  the  debate.  Thus  it  has  been  in  every  sub- 
sequent discussion  of  this  subject.  Every  speaker  has 
acted  as  a  reflector  of  the  wishes  of  his  constituency, 
instead  of  shining  as  an  independent  light. 

New  England  was  strongly  opposed  to  protection  as  a 
principle,  because  her  interests  at  that  time  were  chiefly 
commercial.      Kentucky  favored   protection   because  she 
was  interested  in  the  growing  of  hemp,  and  the    manu- 
facture  of   cotton  bagging.     Pennsylvania  had  been  the 
mother  of  protection  in  order  to  develop  her  iron  inter- 
ests      Wool-growers  and  wool-manufacturers  were  on  tlie 
same  side.     Thev  were  located  partly  in  Connecticut,  but 
were  more  num^erous  in  New  York.     Southern  members 
were  divided,  though  quite  generally  they  were  in  favor 
of  the  bill.     Their  chief  reason  for  supporting  it  was  to 
protect  the  banks,  in  that  section  of  the  country  which 
were  not  strong,  and  which  feared  that  the  purchase  o 
India    cottons   might   drain    them    of    their   specie,   and 
leave  only  the  dregs  of  their  paper  money.     To  protec 
the  Southern  banks,  therefore,  the    members   from   that 


36-4      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1816. 

section  were  willing  to  impose  a  duty  on  cotton  goods ; 
but  to  get  such  protection  it  was  necessary  to  extend  the 
application  of  the  principle  to  other  articles.  Louisiana 
favored  the  bill  in  order  to  develop  her  sugar  industry.^ 

The  bill  passed  the  House  by  a  large  majority  ;  nor  was 
its  passage  through  the  Senate  long  delayed.^  The  bill  ^ 
was  constructed  on  the  principle  of  imposing  duties 
virtually  prohibitory  on  foreign  articles  of  which  a 
full   domestic   supply  could  be  produced,  and  a  duty  of 

1  While  the  bill  was  under  discussion,  a  member  of  Congress  thus  wrote 
to  one  of  his  friends  about  it:  "I  am  vexed  at  the  narrow-minded  policy 
which  prevails  among  many  members.  They  came  here  to  legislate  for 
this  great  and  growing  nation;  and  they  bring  with  them,  and  retain,  all 
their  local  jirejutlices  and  distinct  interests,  and  lose  sight,  or  rather  never 
get  a  sight,  of  the  general  interest.  .  .  .  The  representatives  of  the  sugar- 
growing  States  insist  on  a  certain  duty  ujion  that  article,  and  the  East  pre- 
sent a  solid  phalanx  against  it.  The  consequence,  I  doubt,  will  be  that 
the  South  will  unite  against  the  duties  in  favor  of  woollens.  .  .  .  One 
would  suppose  that  sheer  interest  would  induce  the  opposite  extremes  of 
our  country  to  be  liberal  to  each  other,  to  compromise,  and  make  some 
mutual  sacrifices  for  the  good  of  the  whole.  The  order  of  the  day  seems 
to  be,  to  catch  and  keep,  and  huckster,  sectional  interests,  without  regard- 
ing the  nation  as  a  great  whole."  —  10  Niles,  p.  81. 

2  "  The  tariff  of  181(J  first  distinctly  proposed  protection  as  an  end;  and 
it  is  an  interesting  fact,  that,  on  that  ground,  it  received  the  support,  not 
only  of  the  Northern  manufacturers,  but  also  of  the  cotton-growers  of  the 
South,  who  wanted  protection  for  their  new  staple  against  the  competition 
of  those  countries  from  which  the  principal  supjily  of  it  was  then  derived  " 
(iV.  Am.  Rev.,  vol.  xcv.,  p.  403).  In  Cambreling's  Report,  Jan.  11,  1837, 
No.  86,  24  Cong.,  second  session,  the  committee  said,  "  There  w^as  danger 
that  the  sudden  renewal  of  our  intercourse  with  foreign  nations,  with 
whom  we  exchanged  productions,  would  give  a  blow  to  manufactures  from 
which  they  would  not  recover  in  many  years.  There  was  a  general  desire 
to  moderate  the  shock;  and  the  duties  levied  by  the  tariff  of  1816  were,  in 
some  instances,  higher  than  they  were  before  the  war,  owing  to  its  heavy 
expenses." 

8  April  30,  1816,  14  Cong.,  first  session,  chap.  107. 


1816.]  TARIFF    LEGISLATION.  365 

twenty  per  cent  on  those  which  could  not  be  wholly 
supplied  at  home  ;  while  on  a  third  class,  embracing 
articles  of  large  consumption  chiefly  produced  abroad,  the 
duties  were  adjusted  witli  a  view  to  raising  the  greatest 
revenue. 

Among  the  more  noteworthy  features  of  the  bill  was 
the  increase  in  articles  charged  with  a  specific  duty.  The 
"  minimum  principle  "  was  really  an  extension  of  the  same 
idea.  This  provided  that  all  fabrics  of  cotton  invoiced 
at  less  than  twenty-five  cents  per  square  yard  should  be 
taken,  in  the  computation  of  the  duty  imposed,  to  have 
cost  that  price  at  the  place  whence  they  were  imported. 
By  this  device  the  normal  rate  of  duties  was  doubled,  and 
even  trebled,  on  the  cheaper  and  more  necessary  kinds  of 
goods.  It  effected  an  absolute  prohibition  on  low-priced 
cloths,  which  were  thereafter  produced  in  this  country. 
"  This  arrangement,"  says  the  "  Democratic  Review,"  ^ 
"  was  adopted  by  Congress  with  two  distinct  objects,  both 
of  which  undoubtedly  influenced  the  different  parties  ac- 
cording to  their  respective  peculiar  views,  —  the  preven- 
tion of  the  importation  of  the  cheap  cotton  cloths  of 
India,  whither  none  of  the  raAV  material  produced  by  this 
country  was  exported,  and  in  payment  for  which  remit- 
tances in  specie  had  to  be  made  to  a  large  amount ;  and 
the  immediate  benefit  of  our  own  manufacturing  estab- 
lishments :  the  latter  consideration  being  naturally  de- 
cisive with  the  North  and  East,  while  the  former  was 
doubtless  mainly  influential  upon  the  South,  whose  banks 
were  in  a  state  of  suspension,  which  made  the  exportation 
of  specie  and  no  cotton  to  India  especially  odious."     This 

1  Vol.  ii.  p.  39. 


366      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1830. 

principle,  of  which  the  people  were  to  hear  so  much  in 
future  years,  was  introduced  by  South  Carolina.^ 

What  consequences  may  be  fairly  traced  to  this  legisla- 
tion ?  The  law  was  regarded  sufficient  by  many  to  pro- 
tect the  home  manufacturer  under  a  normal  condition  of 
things,  such  as  Niles  had  prophesied  would  be  reached 
"by  and  by."  But  auctions  multiplied,  at  which  goods 
were  sold  at  very  low  prices.  A  manufacturer  wrote  to 
Niles  soon  after  the  law  was  passed,  "I  have  it  in  my 
power  to  state  I  can  manufacture  broadcloths  and  cas- 
simeres,  fine  or  coarse,  as  cheap  as  they  can  be  regularly 
imported,  and  make  a  handsome  profit ;  but  I  cannot 
come  into  competition  with  the  sacrifices  now  making, 
nor  do  I  wish  it."  ^  The  foreign  goods  with  which  the 
country  was  inundated,  during  the  first  3'ear  of  peace, 
amounted  to  $14,685,399.  This  was  more  than  double 
the  quantity  that  could  be  consumed.  No  wonder  the 
prices  fell  swiftly  and  heavily.^  Through  the  machinery 
of  auctions,  goods  were  drawn  into  every  nook  of  the 
country. 

They  were  often  sold  to  the  consumer  on  a  credit  of 
six,  nine,  or  even  twelve  months.  With  low  prices  and 
long  credits,  the  temptation  to  buy  could  not  be  resisted. 
The  farmer  and  his  family  were  just  as  eager  to  make 
purchases  as  any  other  class.  By  so  doing  they  under- 
mined the  factory  and  their  own  house.  During  the  war, 
many  had  been  induced  to  expend  large  sums  in  intro- 
ducing and  breeding  merino  sheep,  which  had  so  in- 
creased as  to  form  a  considerable  item  of  wealth.     With 

1  Nathan  Appleton,  What  is  a  Revenue  Standard  ?  p.  7. 

2  11  Niles,  p.  79.  «  11  Niles,  p.  80. 


1881.]  TARIFF   LEGISLATION.  367 

the  closing  of  American  factories  in  1816,  sheep-raising 
declined,  and  the  wool  produced  was  exported  chiefly  to 
Great  Britain.  It  is  said  that  thousands  of  them  were 
killed,  and  tried  for  tallow.^ 

The  skies  cleared  a  little  after  a  few  years ;  the  prices 
of  woollen  goods  advanced  ;  and  other  individuals  pur- 
chased the  establishments  erected  during  the  war,  and  set 
them  a-going.  Their  success  tempted  others  to  adven- 
ture. In  1821  the  consumption  of  wool  exceeded  the 
amount  raised,  and  a  small  quantity  was  imported.  But 
the  sun  did  not  shine  long.  Soon  our  markets  were  over- 
stocked with  British  woollen  goods,  which  were  sold,  on 
account  of  the  manufacturer  or  British  agent,  at  auction, 
and  for  less  than  their  actual  cost.^  Unless  this  huge 
wave  of  importation  could  be  checked,  the  second  set  of 
woollen-manufacturers  were  sure  to  be  swamped,  and 
more  quickly  than  the  first  had  been.     They  loudly  cried 

1  Martindale,  —  from  whose  speech,  deliveretl  in  the  House  in  February, 
1824,  many  valuable  facts  may  be  gathered,  —  in  drawing  a  picture  of  this 
period,  said,  "  While  this  process  of  waste  and  devastation  was  going  on, 
the  provision-market  was  depressed  also.  There  was  little  demand  for  the 
farmer's  provisions,  for  his  beef,  pork,  and  wheat.  The  price  was  greatly 
reduced.  But  the  habits  of  the  farmer  and  his  family  were  formed,  and 
suited  to  better  times.  The  customs,  tastes,  and  fashions  of  the  country, 
and  his  immediate  neighbors,  imposed  a  kind  of  moral  necessity  upon  him 
to  measure  his  expenses  by  theirs,  not  by  his  means.  His  expenses  were 
greater  than  his  income.  The  consequences  were  inevitable  :  his  cash 
was  first  exhausted,  and  next  the  produce  of  his  farm;  his  credit  next,  and 
(by  a  mortgage)  next  the  farm  itself.  The  expenses  which  produced  the 
mortgage  prevent  the  redemption.  The  farm  is  sold  to  pay  for  foreign 
goods,  and  the  merchant  becomes  the  purchaser.  This  is  no  unreal  pic- 
ture, which  has  no  original  in  nature." 

2  "  Anterior  thereto,  our  own  merchants  imported,  on  their  own 
account,  and  at  merely  a  fair  mercantile  profit,  goods  ecjual  to  the 
wants  of  the  country." —  3/emorja/,  State  o/ JV.   Y.,  1S'_'4,  pp.  3,  4. 


368      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1821. 

out  to  the  government  for  help,  for  there  was  no  prospect 
of  getting  relief  from  any  other  quarter. 

The  imposition  of  the  twenty-five  per  cent  duty  on 
cotton  goods,  with  the  minimum  valuation,  was  perhaps 
the  most  successful  outcome  of  the  tariff  of  1816.  The 
friends  of  protection  had  advocated  the  doctrine,  that, 
while  the  imposition  of  a  higher  duty  for  a  time  might 
enhance  prices  to  the  consumer,  competition  at  home 
would  reduce  them ;  so  that,  in  the  end,  they  would  be 
lower  than  if  our  dependence  were  wholly  or  chiefly  on 
a  foreign  market.  The  cheap  cottons  of  India  were  ex- 
cluded by  the  operation  of  the  law ,  our  wants  were  soon 
abundantly  supplied  by  American  manufactures;  a  fabric 
of  better  quality  was  made ;  and  the  cost  to  the  consumer 
was  lessened.  This  was  indeed  the  most  conspicuous 
triumph  to  the  manufacturer  and  to  the  consumer  by  the 
operation  of  the  law;  yet  the  benefits  to  both  classes  in 
the  manufacture  and  purchase  of  leather,  boots  and  shoes, 
harnesses,  saddles,  bridles,  cabinet  furniture,  carriages, 
hats,  nails,  shovels,  and  spades,  may  be  mentioned,^ 

Clay  had  been  one  of  the  most  zealous  members  of 
Congress  in  advocating  high  duties.  He  lived  in  a  dis- 
trict where  the  cultivation  of  hemp  was  an  important 
industry.  Prior  to  the  war,  the  towns  of  Inverness  and 
Dundee,  in  Scotland,  had  supplied  this  country  almost 
wholly  with  bagging  for  cotton.  During  the  war  the 
manufacture  of  this  article  was  attempted.  The  prices  at 
first  demanded  were  very  high ;  but,  when  the  war  closed, 
the  prospects  of  the  American  manufacturer  immediately 
changed.      England    had    purchased    vast    quantities    of 

1  See  Condict's  Speech,  April,  1824,  18  Cong.,  first  session. 


1882.]  TARIFF   LEGISLATION.  369 

hemp  from  Russia,  duriug  the  war,  to  be  used  in  the  navy: 
but,  with  the  return  of  peace,  much  was  sold  by  the  gov- 
ernment to  the  manufacturers  at  Inverness  and  Dundee, 
who  made  it  into  bagging,  and  sent  it  to  the  United  States. 
They  crushed  the  American  manufacturer.  But  having 
achieved  the  victory,  the  price  of  the  article  to  the  cot- 
ton-grower was  immediately  raised;  and  Clay  affirmed, 
in  1824,  that  "the  extra  price  would  be  more  than 
equal  to  ten  years'  protection  of  our  fabric."  The 
American  manufacturer  had  been  overthrown,  because 
his  capital  was  too  small  to  cope  successfully  with  his 
foreign  competitors.  They  continued  to  hold  the  market 
until  1822,  when  the  manufacture  of  the  article  in  Ken- 
tucky was  revived ;  and  during  that  year  a  million  yards 
were  made  at  Lexington,  and  the  price  was  reduced 
from  thirty-five  to  twenty  cents  per  yard.  Such  was 
the  effect  of  the  tariff  with  regard  to  the  manufacture 
and  consumption  of  hemp. 

In  passing,  it  may  be  shown  how  the  law  affected  the 
importation  of  spirituous  liquors.  Formerly  twelve  to 
fifteen  million  gallons  a  year  had  been  imported.  An  in- 
come had  been  derived  from  that  source,  amounting  nearly 
to  two-fifths  of  the  whole  revenue.  By  the  new  tariff, 
the  quantity  imported  was  reduced  to  about  four  million 
gallons  per  annum.  The  use  of  spirits,  however,  liad  nor 
diminished :  on  the  other  hand,  it  had  increased  in  conse- 
quence of  the  cheapness  of  the  domestic  article  and  in- 
creased population.  The  tariff,  therefore,  had  greatly 
reduced  the  importation  of  spirits ;  but,  as  it  was  a  luxury, 
it  should  have  been  subjected  to  an  internal  duty.  It  was 
very  poor  statesmanship  to  suffer  this  article,  which  is 


370      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1818. 

singled  out  by  so  many  nations  for  heavy  taxation,  to  bear 
a  burden  so  light.i 

Let  us  now  consider  how  the  iron-manufacturers  fared 
after  the  enactment  of  this  law.  The  most  important 
establishments  were  just  beginning  to  manufacture,  when 
the  law  was  passed.  They  had  yet  to  acquire  skill  in 
management,  system,  —  all  the  indispensable  knowledge, 
which  could  be  acquired  only  by  experience.  Nine-tenths, 
perhaps,  of  the  owners,  were  in  debt.  In  every  respect 
these  were  infant  manufactures.  Notwithstanding  the 
barriers  imposed  by  law  against  importing  foreign  prod- 
ucts, they  were  easily  surmounted ;  and  many  of  our 
manufacturers  fell  an  easy  prey  to  their  mighty  rivals. 
First  went  all  the  newly  erected  manufactbries  of  earthen- 
ware. Of  these  and  their  workmen,  no  more  was  heard, 
half  a  dozen  years  afterward,  than  if  they  had  never  ex- 
isted. In  the  same  way  went  most  of  the  glass-factories, 
and  the  manufactures  of  white  and  red  lead.  The  manu- 
facture of  iron  continued  longer,  but  in  a  feeble  way, 
dwindling  every  year,  and  gradually  sinking  under  foreign 
importations.  During  the  four  years  between  1817  and 
1821,  the  holders  of  property  in  the  United  States  were 
supposed  to  have  suffered  a  depreciation  of  nearly  eight 
hundred  million  dollars.  "  General  bankruptcy  spread  its 
darkness  over  the  land ;  many  of  the  wealthiest  families 
were  reduced  to  poverty ;  laborers  suffered  for  want  of 
bread ;  improvements  of  all  sorts  were  abandoned ;  and  a 
scene  of  the  most  intense  national  distress  ensued."  ^ 

The  terrible  condition  to  which  the  iron-manufacturers 

1  See  Mallory's  Speech,  February,  1824, 18  Cong.,  first  session. 

2  Memorial,  N.  Y.  Convention,  Jan.  22,  1833,  p.  9. 


^gjg,^  TARIFF  LEGISLATION.  371 

were  reduced,  after  the  war,  may  be  shown  more  vividly 
by  considering  what  befell  those  in  a  single  locality.     In 
the  county  of  Morris,  New  Jersey,  there  were  about  forty 
manufacturing  concerns  at  the  close  of  the  war.    Of  these, 
all  save  four  or  five  were  either  abandoned  or  sold  duruig 
the  next  eight  years.      Those  that  withstood  the  shock 
had  accumulated  wealth  when  the  business  was  profitable, 
and,  during  the  period  of  depressed  prices,  merely  con- 
verted the  surplus  produce  of  their  farms  into  cash  by 
the  operations  of  their  forges,  following  the  iron  business 
as  a  secondary  employment.     Every  man  who  made  it  his 
principal  business,  who  sold  his  iron  and  purchased  his 
provisions  and  stock,  was  ruined.     His  forge,  his  lands, 
his  croods  and  chattels,  were  all  struck  off  under  the  sher- 
iff's\ammer,  at  public  auction.     He  himself  was  driven 
to  jail      His  workmen  were  unemployed :  some  of  them  fol- 
lowed their  employer  to  prison;  others  emigrated  to  new 
countries.     Their  families  were  reduced  to  abject  want, 
and  compelled  to  ask  relief  from  the  town,  or  resort  to 

beggary.  , 

In  1818  >  the  iron  interests  were  suffering  so  severely, 
that  a  duty  of  seventy-five  cents  per  luuulred  pounds,  or 
fifteen  dollars  per  ton,  was  imposed.  With  thi^s  advance, 
many  of  the  iron-works  in  the  country  revived;  and  by 
practising  rigid  economy,  their  owners  were  able  for  a 
time  to  continue  the  business.  But  the  general  peace  de- 
clared in  Europe,  and  the  disbanding  of  about  six  hun- 
dred thousand  men,^  so  long  employed  in  arms,  affected 
the  price  of  labor ,  and  the  manufacturers  of  Sweden, 

1  Act,  April  20, 15  Cong.,  first  session,  chap.  103. 

.  S^  spencer  Walpole's  Hist,  of  England,  vol.  i.  chaps.  1  and  .. 


372      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1823. 

Russia,  and  England,  could  produce  their  goods  so  cheaply, 
that  once  more  they  undersold  the  American  manufac- 
turer. The  importations  of  iron  in  1821,  '22,  and  '23 
were  so  enormous  that  the  American  manufacturer  was 
driven  from  the  field.  The  government  was  as  powerless 
to  protect  him  from  the  competition  of  foreigners,  as 
were  the  gods  of  antiquity,  taken  by  each  trade  for  its 
special  protection,  to  prevent  the  coming  and  work  of  the 
destroyer.  The  average  annual  import  had  been  about 
twenty  thousand  tons;  but  in  1823  these  figures  were 
exceeded  by  eleven  thousand  tons.  Loudly  did  he  cry, 
in  union  with  other  manufacturers,  for  more  strenuous 
governmental  protection. 

Of  the  many  industrial  enterprises  which  had  been 
launched  during  the  war  with  so  much  confidence,  only  a 
few  had  had  a  prosperous  history.  Many  had  been  hope- 
lessly wrecked ;  while  others  were  thumping  against  the 
rocks,  and  threatened  with  speedy  ruio.^  The  magnitude 
of  the  dangers  to  which  American  manufacturers  were  ex- 

1  The  Memorial  of  the  New- York  Chamber  of  Commerce,  in  1824,  to 
Congress,  declared  that  the  tariff  of  1816  had  so  far  fostered  domestic 
manufactures,  that  they  soon  recovered  from  the  embarrassments  which 
followed  the  great  influx  of  foreign  goods  in  1815,  and  had  since,  in  most 
cases,  when  managed  with  skill  and  prudence,  and  aided  by  sufficient 
capital,  been  prosperous  and  profitable.  "  We  do  not  hesitate  to  assert," 
the  Memorial  continued,  "  that  money  vested  in  such  establishments  has 
yielded  better  returns  than  money  employed  in  commerce,  navigation, 
or  agriculture.  Since  that  tariff  has  been  in  operation,  and  charges  on 
importing  foreign  goods  (including  duties,  and  premiums  on  exchange) 
has  varied  from  forty  to  fifty  per  cent  on  the  first  cost  of  those  which 
pay  ad  valorem  duties,  and  a  much  higher  rate  on  those  charged  with 
specific  duties,  the  premium  to  our  manufactures  has  consequently  been 
from  two-fifths  to  one-half  of  the  first  cost  of  all  foreign  articles  which 
come  into  competition  with  our  domestic  products."  —  p.  3. 


1883.]  -       TARIFF   LEGISLATION.  373 

posed,  was  not  seen  by  them  in  the  beginning.  They  did 
not  consider  that  a  great  market,  which  their  British  breth- 
ren had  held  for  more  than  two  hundred  years,  throuo-h 
legislation,  would,  if  possible,  be  retained  through  the 
might  of  capital,  experience,  and  fraud.  Lord  Brougham's 
advice  about  strangling  the  infant  manufacturers  in 
the  United  States  was  hardly  needed;  it  was  followed 
unhesitatingly,  and,  so  far  as  we  know,  without  remorse.^ 
Necessity,  too,  often  compelled  the  British  manufacturer 
to  unload  upon  our  shore,  however  great  might  be  his 
sacrifice.  The  cotton-manufacturers,  indeed,  had  pros- 
pered .  and  the  force  of  the  huge  wave  of  competition  had 
been  broken  by  the  AUeghanies.  Westward  the  iron 
manufacturers  found  a  market  for  their  wares  at  remun- 
erative prices,  but  elsewhere  the  shock  sustained  by  them 
had  been  terrific. 

Much  too  severe  was  the  pressure  upon  them  from 
without ,  but  they  were  also  heavily  handicapped  by  many 
causes  at  home,  the  probable  consequences  of  which  they 
ought  to  have  considered.  Many  of  their  factories  had 
been  built  with  borrowed  money  possessing  an   inflated 

1  "It  is  notorious,"  says  Niles,  "that  immediately  alter  the  close  of 
the  revolutionary  war,  great  sums  of  money  were  expended  to  destroy 
our  flocks  of  sheep,  and  ruin  our  rising  manufactories.  Tliey  bought  up 
and  immediately  slaughtered  great  numbers  of  that  us»;ful  animal,  and 
spared  no  expense  to  send  'home'  the  few  artists  that  had  struggled 
hither,  with  their  machines  and  implements  of  trade.  These  things  are 
just  as  well  known  and  established  as  that  they  are  doing  the  same 
things  now  [July,  1818].  I  am  perfectly  assured  that  in  one  vessel  there 
went,  from  the  United  States  to  England,  between  ten  and  twenty 
manufacturers  (natives  of  that  country),  passage  free,  and  with  hand- 
some bounties  ;  and  I  am  quite  satisfied  that  a  very  extensive  business 
has  been  done  in  this  way."  — 10  Niles,  p.  322. 


374      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1833. 

value.  With  the  settling-back  of  values,  and  a  contrac- 
tion of  the  circulation,  the  burden  of  the  manufacturers 
was  greatly  increased.  The  experiment  would  have  been 
hazardous,  even  if  they  had  fully  owned  their  factories 
and  machinery,  and  had  possessed  a  working-capital  of 
their  own.  Owing  vast  sums,  and  daily  witnessing  a 
decline  in  the  value  of  their  products,  the  hour  came 
when  they  sorrowfully  realized  the  hard  conditions  envi- 
roning them,  and  the  difficulty  of  achieving  success. 

Nevertheless  they  gained  something:  they  acquired 
precious  lessons  of  experience.  Their  necessities  gave 
birth  to  greater  economy  and  skill.  Strange,  indeed,  had 
no  one  gained  any  thing  amid  so  much  misfortune  and 
disappointment.  But  the  consumer  had  gained  more. 
He  had  bought  at  low  figures.  Meantime,  hope  perished 
not.  Trusting  to  the  government  for  further  aid,  the 
manufacturers  continued  the  struggle. 


1824.] 


TAEIFF  LEGISLATION.  375 


CHAPTER  IV. 

TARIFF  LEGISLATION. 
1824^1832. 

The  tariff  of  1816,  therefore,  had  sorely  disappointed 
the  manufacturers.  Many  branches  of  industry  had  been 
utterly  destroyed:  others  were  desperately  continuing 
the  unequal  contest,  hoping  for  a  better  day.  Since  the 
o-overnment  had  undertaken  to  protect  them  in  their 
endeavors,  they  believed  the  government  would  not  aban- 
don them  utterly  to  the  fate  of  stronger  competitors. 
The  cotton-manufacturers  were  the  only  class  who  had 
held  their  ground,  or  attained  any  satisfying  success. 
They,  for  the  most  part,  were  not  disappointed  with  the 
results  of  their  experiment. 

The  ill  effects  of  foreign  competition,  as  we  have  seen, 
appeared  early ;  and  the  cry  was  soon  heard  for  more  gov- 
ernmental protection.  Save  raising  the  duties  on  iron 
in  1818,  and  reducing  those  on  ^N-ine  the  next  year,i  the 
tariff  of  1816  lasted  eight  years,  when  the  subject  received 
another  elaborate  discussion,  from  which  emerged  the 
tariff  of  1824.2 

The  bill  was  reported  to  the  House  by  the  chairman 

1  Act,  March  3, 1819,  15  Cong.,  second  session,  cbap.  82. 

2  May  22,  18  Cong.,  first  session,  chap.  13(5. 


376      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1884. 

of  the  committee  on  commerce  and  manufactures.  The 
duties  proposed  were  on  two  distinct  classes  of  articles. 
The  first  class  embraced  silks,  linens,  cutlery,  spices,  and 
some  other  commodities  of  less  importance  ;  the  importa- 
tion of  which  did  not  interfere  with  the  business  of  any 
home  manufacturer,  or  with  any  manufacture  for  which 
the  country  was  then  prepared.  But  the  most  important 
duties  proposed  in  the  bill  were  of  a  protective  nature. 
These  were  laid  on  iron,  hemp,  glass,  lead,  wool,  and 
woollen  goods. 

The  debate  was  hottest  and  most  protracted  with 
respect  to  the  duties  which  should  be  imposed  on  cotton 
bagging  and  iron.^  Fuller  of  Massachusetts  moved  to 
reduce  the  duty  proposed  on  iron,  which  was  an  increase 
of  seven  dollars  and  a  half  per  ton.  He  declared  that  the 
increase  would  enhance  the  cost  of  the  implements  of 
husbandry  and  of  the  mechanic  arts ;  but,  of  all  classes, 
the  ship-builders  would  suffer  most  from  the  pressure  of 
this  new  burden. 

Buchanan  replied.  For  a  time  there  was  prosperity 
among  those  iron-manufacturers  who  resided   some   dis- 

1  Trimble  oi  Kentucky  said,  duxing  the  debate,  "  So  abundant  was 
hemp  in  the  Western  country,  that,  if  we  impose  only  such  duty  as  will 
give  the  farmer  a  fair  minimum  price,  the  farmers  there  will  keep  down 
the  maxitoum  tc  the  niinimum  nearly,  and  Mr.  Trimble  pledged  himself 
that  the  manufacturers  of  the  West  would  supply  tlie  whole  country  with 
bagging  at  not  exceeding  twenty-two  and  a  half  cents  per  yard,  if  Congress 
would  grant  them  protection,  and  that  they  would  keep  it  down  to  that 
price.  But,  by  laying  a  proper  duty,  the  market  must  first  be  made  steady 
in  its  character,'  *o  that  the  foreigner  cannot  destroy  the  hemp  grower  and 
the  manufacturer  both  by  excessive  importations.  Bagging  would  be  sold 
cheaper  as  sooni  as  hemp  was  allowed  the  same  protection  as  was  given  to 
the  Southern  cotton." 


1884.]  TARIFF   LEGISLATIOX.  377 

tance  from  the  seacoast,  and  in  a  neighborhood  where  a 
demand  existed  for  all  the  iron  they  could  manufacture. 
Foreign  iron,  before  it  could  come  into  competition  with 
theirs,  must,  in  addition  to  the  duty,  pay  the  cost  of 
transportation  into  the  country.  Such  individuals,  by  the 
ruin  of  rival  manufacturers,  and  the  consequent  destruc- 
tion of  domestic  competition  within  their  sphere,  had 
become  the  monopolists  of  the  neighboring  markets.  In 
this  manner  the  former  was  compelled  to  pay  a  much 
greater  price  for  his  iron  than  he  would  if  the  protecting 
power  of  the  government  recalled  into  existence  those 
rival  manufactures  which  had  sunk  under  its  neglect. 
The  manufacturers  residing  in  the  interior,  wlio  had  no 
market  except  in  the  Atlantic  cities,  in  addition  to  the 
cost  of  their  iron,  were  compelled  to  pay  transportation 
upon  it  to  a  market  where  it  came  into  competition  with 
that  from  Russia  and  Sweden ;  and,  under  the  present 
tariff,  they  must  be  ruined  if  they  continued  in  the 
business.  In  fact,  most  of  them  who  were  thus  situated 
had  been  compelled  to  stop.  A  few  years  before,  the 
traveller  going  into  the  mountainous  districts  of  Penn- 
sylvania would  have  found  a  great  number  of  furnaces 
and  forges  in  active  operation.  Their  owners  were  not 
only  prosperous,  but  they  spread  prosperity  around  them. 
These  manufactories  presented  the  best  and  surest  mar- 
ket to  the  neighboring  country  for  the  products  of  agri- 
culture. They  diffused  wealth  among  the  people,  money 
circulated  freely,  and  the  manufacturer  and  the  farmer 
were  equally  benefited.  The  present  aspect  of  those  dis- 
tricts presented  a  melancholy  contrast  to  that  which  he 
had  described.     It  was  a  just  comment  upon  tho  policy 


378      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1884. 

of  that  country  which  would  not  afford  a  reasonable  pro- 
tection to  its  own  domestic  industry,  and  thereby  gave  to 
foreigners  a  decided  preference  in  its  markets.  Although 
that  portion  of  Pennsylvania  abounded  with  ore,  with 
wood,  and  with  water-power,  yet  its  manufactories  gener- 
ally had  sunk  into  ruin,  and  existed  only  as  standing 
monuments  of  the  false  policy  of  the  government.  The 
manufacturers  and  their  laborers  had  both  been  thrown 
out  of  employment,  and  the  neighboring  farmer  was  with- 
out a  market. 

Webster  denied  that  there  had  been  such  general  dis- 
tress among  the  manufacturing  interests  of  the  country. 
On  the  contrary,  he  believed  there  was  no  period  in 
which  the  general  prosperity  had  been  better  secured,  or 
rested  on  a  more  solid  foundation.  In  discussing  the 
proposed  duty  on  iron,  he  said  the  freight  on  iron  had 
been  offered,  from  Sweden  to  the  United  States,  as  low  as 
eight  dollars  per  ton.  This  was  not  more  than  the  price 
of  fifty  miles  of  land-carriage.  Stockholm,  therefore,  for 
the  purpose  of  his  argument,  might  be  considered  as 
within  fifty  miles  of  Philadelphia.  Now,  it  was  at  once 
a  just  and  a  strong  view  of  the  case,  to  consider  that 
there  were,  within  fifty  miles  of  our  market,  vast  multi- 
tudes of  persons  who  were  willing  to  labor  in  the  pro- 
duction of  this  article  for  us  at  the  rate  of  seven  cents 
per  day,  while  we  had  no  labor  which  would  not  com- 
mand, upon  the  average,  at  least  five  or  six  times  that 
amount.  The  question,  then,  was,  should  we  buy  this 
article  of  those  manufacturers,  and  suffer  our  own  labor 
to  earn  its  greater  reward,  or  should  we  employ  our  own 
labor  in  a  similar  manufacture,  and  make  up  to  it,  by  a 


1824.]  TARIFF   LEGISLATION.  379 

tax  on  consumers,  the  loss  which  it  must  necessarily  sus- 
tain. 

In  the  Senate  the  bill  encountered  a  determined  resist- 
ance from  the  opponents  of  a  strongly  protective  policy, 
and  was  materially  modified  in  the  direction  of  lower 
duties. 

This  tariff  was  disappointing  to  some  interests :  in  sev- 
eral ways,  however,  there  was  progress.  Cotton-manufac- 
turers flourished,  though  dark  days  were  mingled  with 
the  sunshine.  For  a  long  period  after  the  law  was  en- 
acted, the  business  receded  from  the  former  liigh-wiiter 
mark.  Many  large  capitalists  who  had  been  engaged  in 
foreign  commerce,  of  which  the  profits  had  greatly  dimin- 
ished, were  led  to  embark  in  manufacturing.  A  supply 
was  created  beyond  the  demand,  and  prices  fell ;  and 
many  of  the  small  establishments  were  compelled  to  sac- 
rifice their  products.  Not  a  few  cases  occurred  in  which 
cloth  was  sold  for  less  than  the  raw  cotton  used  in 
making  it.  One  consequence  of  the  increased  duties, 
therefore,  was  the  erection  of  too  many  mills,  causing  ex- 
cessive competition  among  the  manufacturers,  and  end- 
ing in  their  financial  embarrassment.  In  the  mean  time 
the  consumer  was  getting  his  goods  at  a  low  figure. 

Indeed,  the  prices  fell  so  low,  compared  with  what  they 
had  been,^  that  cotton  goods  were  exported  to  some  ex- 
tent ;  although  those  opposed  to  protection  claimed  tliat 
these  exportations  were  simply  to  complete  tlie  assorted 
cargoes  which  must  be  taken  in  order  to  make  voyages 
of  that  nature,  which  were  chiefly  to  South  America, 
successful.2     Notwithstanding  the  fall  in  the  price  of  the 

1  Dem.  Rev.,  vol.  ii.  p.  43.       2  Lee's  Report,  N.  Y.,  1828,  pp.  25,  26. 


380      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1834, 

manufactured  product,  it  was  not  in  proportion  to  the 
decline  in  the  price  of  cotton.  It  must  be  added,  too, 
that  the  diminution  of  prices  was  due  in  part  to  great 
improvements  in  machinery. 

When  Simon  N.  Dexter,  a  leading  cotton-manufacturer, 
was  examined  before  the  committee  of  manufactures  in 
1828,  he  was  asked  why  he  was  enabled  to  sell  coarse 
cottons  so  much  lower  than  they  were  sold  a  few  years 
before?  was  it  owing,  in  any  considerable  degree,  to  the 
increase  of  capital,  of  skill,  the  perfection  of  machinery, 
and  to  the  diminished  price  of  cotton?  to  which  he 
replied  that  it  was  owing  to  the  improvement  in  ma- 
chinery, the  reduced  price  of  raw  cotton,  and  to  the 
increased  skill  of  manufacture.^ 

When  he  was  asked  if  the  continuation  of  the  mini- 
mum duty  on  coarse  cotton  goods  was  not  the  only  se- 
curity on  which  the  manufacturers  relied  for  continuing 
their  operations,  he  answered,  "I  cannot  say  that  it  is. 
I  think  the  manufacture  of  coarse  cottons  in  this  coun- 
try is  now  so  well  established,  that  we  could  make  them, 
if  the  present  premium  was  reduced.  I  think,  if  the 
present  premium  was  repealed,  that  the  foreign  cottons 
of  this  description  would  for  a  time  come  in,  and  would 
greatly  injure,  for  a  while,  all  our  manufacturers ;  but 
this  would  be  done  at  a  loss  to  the  foreign  manufacturer. 
Some  of  our  manufacturers  would  be  able  eventually  to 
sustain  themselves,  because  they  can  afford  the  article 
now  as  cheap  as  it  can  be  afforded  from  England.  This 
redaction  would,  however,  create  a  contest  between  the 
American  capital  invested  in  these  manufactures,  and  the 

1  Mallory's  Report,  No.  115,  20  Gong.,  first  session. 


1824.]  TARIFF   LEGISLATION.  381 

foreign,  which  would,  in  my  opinion,  ruin  some  of  our 
establishments,  and  compel  them  all,  for  a  time,  to  sustain 
themselves  at  a  loss."  The  opinions  of  Dexter  were  con- 
firmed by  other  manufacturers.  On  the  finer  goods,  it 
was  thought  that  perhaps  a  slight  addition  to  the  duty 
was  needed  to  compete  successfully  with  foreign  coun- 
tries;  but  otherwise  they  sought  no  further  protection 
from  the  government.^ 

1  In  a  report  on  the  production  and  mannfacture  of  cotton,  at  the  New- 
York  Convention  in  18ol,  it  was  affirmed  tliat  the  kinds  of  goods  which 
constituted  the  staple  manufacture  of  this  country  were  not  made  else- 
where; and  the  committee  who  made  the  report  believed  they  never  could 
be  produced  so  advantageously  as  at  home.  The  price  of  the  coarse  and 
heavy  fabrics  to  which  the  attention  of  the  manufacturers  was  in  the  first 
instance  necessarily  directed,  fell,  in  the  fourteen  years  from  1816  to  1830, 
two-thirds;  while  that  of  the  raw  material  declined,  notwithstanding  the 
immense  increase  of  production,  only  one-half.  The  result  was  entirely 
attributed  to  the  increased  skill  of  the  manufacturers,  and  to  competition 
among  themselves.  It  might  be  aflSrmed,  and  rigidly  proved,  they  said, 
that  sheetings  could  at  that  moment  be  made  at  a  less  price  in  the  United 
States  than  in  any  other  country.  Of  what  necessity,  then,  it  might  be 
asked,  was  the  protecting  duty  of  eight  and  three-quarters  cents  a  square 
yard?  The  committee  answer  thus:  "1st,  That,  if  the  position  here  ad- 
vanced be  correct,  the  duty,  so  far  as  these  goods  are  concerned,  cannot 
operate  as  a  tax,  and  that  the  effect  of  repealing  it  would  be  to  excite  a 
foreign  competition,  which,  however  ruinous  to  the  importer,  who  would 
ultimately  be  driven  from  the  market,  would,  in  the  mean  while,  produce 
great  confusion  and  distress  at  home;  2d,  That  the  cotton  manufacture  has 
doubled  itself  within  five  years,  extending  gradually  to  the  finer  goods, 
which  require  more  skill  and  less  of  the  raw  material,  and  which,  conse- 
quently, are  less  protected  by  the  existing  system  of  a  minimum  duty.  As 
competition  increases,  it  may  be  expected  that  finer  and  more  elaborate 
textures  will  be  attempted.  "We  affirm  that  the  pledges  of  the  manufac- 
turers have  been  fully  redeemed  by  the  existing  low  price  of  coarse  goods, 
the  only  ones  contemplated  in  the  enactment  of  the  tariff  of  181G,  and 
that  the  same  result  will  follow  in  fine  goods,  if  the  protection  now  ex- 
tended to  them  shall  be  continued."  —  p.  10. 


382      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1828. 

Another  consequence  of  this  law  was,  that  influential 
men  in  New  England  invested  in  these  enterprises,  and 
they  became  upholders  of  the  protective  principle.  Said 
Webster,  in  the  Senate,  in  1828,  "Nothing  was  left  to 
New  England,  after  the  Act  of  1824,  but  to  conform 
herself  to  the  will  of  others.  Nothing  was  left  to  her 
but  to  consider  that  the  government  had  fixed  and  deter- 
mined its  own  policy,  and  that  policy  was  protection." 

The  paper-manufacturers  at  this  time  were  in  a  very 
flourishing  condition.  A  paper-manufacturer  was  asked, 
"  Are  the  prices  of  paper  lower  now  than  formerly,  and, 
if  so,  is  this  owing  to  importations,  or  to  domestic  compe- 
tition ? "  to  which  he  answered,  "  The  price  of  some 
kinds  of  paper  are  lower  than  formerly :  other  kinds  bear 
about  the  same  prices,  or  perhaps  those  of  the  best 
quality  are  a  shade  higher  than  they  were  eighteen 
months  ago.  I  conceive  the  prices  are  regulated  now 
wholly  by  domestic  competition." 

Iron-manufacturers,  too,  regarded  the  future  with 
greater  hope.  Most  all  kinds  of  iron  were  produced  at 
some  profit,  although  prices  had  fallen  below  the  mark 
which  existed  a  few  years  before.  The  duty  on  nails  was 
declared  to  be  "ample."  One  manufacturer  said,  that, 
during  the  late  war,  several  very  important  establishments 
were  erected,  and  for  a  time  they  flourished.  In  1816, 
and  for  several  subsequent  j^ears,  their  condition  was 
reversed.  Within  the  last  two  or  three  years,  with  two 
exceptions,  they  had  revived.  Some  new  works,  also,  had 
been  erected.  On  hammered,  bar,  and  sheet  iron,  a  higher 
duty  was  deemed  expedient,  and  also  on  rolled  and  slit 
nail  and  spike  rods.     There  was  a  kind  of  hammered  iron, 


1828.]  TARIFF   LEGISLATION.  383 

resembling  spike-rods,  imported  from  Russia,  which  inter- 
fered with  the  nail  and  spike  rods,  and  affected  their 
prices.  The  revenue  laws  were  evaded  by  entering  it  as 
hammered  iron.  An  increase  on  this  article  was  deemed 
expedient,  or  provision  made  to  prevent  the  evasion  of  the 
existing  revenue  laws  by  placing  it  on  the  footing  of  nail 
and  spike  rods. 

Another  favorite  object  of  protection  by  the  govern- 
ment had  been  sail-duck.  This  at  first  was  imported 
mostly  from  Russia,  and  was  made  either  of  flax  or  hemp. 
But  after  a  time  the  experiment  was  tried  in  this  country 
of  making  it  from  cotton,  and  with  so  much  success  as  to 
endanger  the  market  to  the  foreign  manufacturer.  It 
was  soon  found  to  be  much  better  than  either  hemp  or 
flax,  and  its  production  rapidly  increased.  Russian  and 
English  manufacturers  sought  to  imitate  it,  and  sell  the 
imitation  at  a  lower  price ;  but,  in  the  end,  the  cotton  was 
so  superior,  that  it  was  very  generally  desired. 

The  manufacture  of  glass  was  also  in  a  sound  way. 
Domestic  competition  had  reduced  the  price,  but  no  fur- 
ther duties  were  needed  nor  desired. 

The  worst  defect  in  the  tariff  law  of  1824  related  to 
wool  and  woollens.  The  object  of  the  law  was  to  encour- 
age the  growth  of  wool,  as  well  as  the  manufacture  of  it. 
It  was  clearly  enough  seen,  that,  if  the  manufacturer  did 
not  prosper,  the  wool-grower  could  not.  But  the  duty  on 
wool  was  too  high  in  proportion  to  the  duty  on  woollen 
goods ;  and  consequently  the  price  and  quantity  of 
domestic  wool  fell  off,  because  manufacturers  would  not 
engage  in  the  business.^     The  prices  of  woollen  goods  had 

1  34  Niles,  pp.  1-18.    33  Ibid.,  p.  434. 


384    rmANCiAL  history  of  the  ui^ited  states,     [isas. 

fallen  so  low,  that  wool-growers  despaired,  and,  in  1827 
and  1828,  began  to  kill  their  sheejD.  Others  continued  to 
raise  them,  hoping  for  a  favorable  change  in  the  law, 
whereby  the  industry  would  revive  and  become  profitable. 
For  two  j^ears,  under  the  new  tariff,  wool-growing  was 
profitable,  but  not  after  that  period.  The  price  declined ; 
and  yet  the  manufacturer  was  not  able  to  make  and  sell 
goods,  except  at  a  loss. 

The  chief  hinderances  were  domestic  competition  and 
increased  importations.  With  the  new  tariff  there  v/as  a 
considerable  increase  of  factories,  which,  of  course,  inten- 
sified the  heat  of  competition ;  but  the  more  potent  cause 
was  the  importation  of  foreign  woollens.  These  were 
pushed  into  our  market,  mainly  because  there  was  a  sur- 
plus of  stock  which  must  be  sold.^  The  condition  of 
woollen  manufactures  in  England  was  fearful.  An  over- 
seer in  the  large  manufacturing  village  of  Saddleworth 
writes  to  his  brother  in  America,  "  If  you  were  in  this 
country,  you  would  scarcely  hear  the  sound  of  a  woollen- 
shuttle  in  all  the  neighborhood  ;  and,  take  all  Saddleworth 
through,  you  will  not  find  one  shuttle  out  of  forty  going."  ^ 
It  was  indeed  one  of   the  greatest  convulsions  the  mer- 

1  Nathan  Hale,  in  his  able  review  and  criticism  of  the  "  American  Sys- 
tem," Boston,  1829,  said  it  would  not  be  denied  that  one  of  the  causes  of 
the  recent  convulsion  "  was  the  overdoing  of  all  branches  of  trade  in  Great 
Britain;  and  among  its  most  disastrous  effects  were  a  sudden  stagnation 
of  demand  for  all  objects  of  trade,  and  a  consequent  unprecedented  fall  of 
prices.  Merchandise  became  a  drug;  and,  as  might  be  expected  under 
these  circumstances,  the  principal  articles  of  British  manufacture,  woollen 
and  cotton  goods  in  particular,  were  thrown  upon  foreign  markets,  not  at 
prices  regulated  by  the  cost  of  manufacture,  but  at  prices  dictated  by  the 
then  desperate  state  of  trade."  —  pp.  41,  42. 

2  For  entire  letter,  gee  33  Niles,  p.  227. 


1828.]  TARIFF   LEGISLATION.  385 

cantile  world  had  ever  known,  and,  since  the  date  of 
the  South  Sea  trouble,  probably  had  not  had  a  parallel. 
"  The  effect  of  the  explosion,"  says  Hale,  "  was  the  sudden 
depression  of  prices ;  and  this  effect  was  seriously  felt  by 
the  manufacturers  of  woollens,  as  well  as  by  many  other 
classes  of  men  in  trade  in  this  country.  Against  sucli 
losses,"  he  maintained,  "the  government  can  afford  no 
relief:  it  would  be  in  vain  to  prevent  their  recurrencie. 
To  undertake  to  indemnify  one  class  who  suffered  loss 
from  this  source  would  be  to  do  gross  injustice  to  the 
whole  community."  ^ 

Dupont,  a  very  prominent  woollen-manufacturer  of  that 
day,  told  a  committee  of  Congress  that  formerly  the  im- 
portations of  woollen  goods  from  England  were  made  by 
our  merchants  in  the  regular  course  (jf  trade.  Now  these 
importations  were  mostly  made  on  British  account,  and  a 
very  large  share  of  them  for  the  following  causes :  first, 
their  home  market  was  overstocked,  and  they  had  rather 
sell  the  surplus  at  a  loss  than  to  keep  it  on  hand ;  and, 
secondly,  the  British  manufacturer  had  on  hand  articles 
not  suited  to  his  home  market,  or  which  were  of  inferior 
quality,  or  which  were  made  from  secondary  materials, 
and  which  he  pressed  off  his  hands  because  they  would 
not  sell  at  home,  or  because  he  would  not  hazard 
the  reputation  of  his  factory  by  putting  them  into 
those  markets.  Those  goods,  brought  to  our  markets 
for  these  causes,  and  sold  at  the  auctions  for  what  they 
would  command,  regulated  the  price  of  our  own  wool- 
len goods. 

There  were  other  causes  prejudicial  to  the  American 

1  American  System,  p.  41. 


386      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1838. 

manufacturer.!  One  was  the  change  in  the  duty  imposed 
by  England  on  her  wool.  When  the  tariff  law  of  1824 
was  enacted,  the  dut}^  on  wool  imported  into  England 
was  sixpence  sterling  per  pound.  That  very  year  the 
duty  was  reduced  to  one  penny.  During  the  debate  in 
the  British  Parliament,  Mr.  Robertson,  a  commercial  mem- 
ber, "  begged  leave  to  call  the  attention  of  the  House  to 
the  state  of  America,"  in  order  to  show  the  expediency  of 
taking  off  the  duty  on  raw  materials.  Having  shown  the 
rapid  growth  in  the  population,  "  which  might  be  expected 
to  amount  to  sixty  millions  in  forty  years,"  he  drew  the 
inference  that  here  was  an  immense  mart  for  English  low- 
priced  cloths,  of  which  England  might  avail  itself,  if  the 
impolitic  duties  on  the  raw  material  were  repealed.  The 
next  year,  even  this  low  duty  was  reduced  one-half  on  all 
wool  costing  less  than  a  shilling  per  pound.  It  was  this 
action  of  the  British  Government  which  led  Edward 
Everett  to  declare,  in  a  public  speech,  that  unless  the 
American  people  thought  it  was  just  and  fair  that  the 
laws  passed  by  the  American  Congress  for  the  protection 
of  American  industry  should  be  repealed  by  the  British 
Parliament,  for  the  purpose  of  securing  the  supply  of  our 
market  to  the  British  manufacturer  to  the  end  of  time,  it 
was  the  duty  of  Congress  to  counteract  this  movement. 
It  was  incumbent  on  Congress,  he  continued,  as  the  very 
least  they  could  do,  to  raise  the  duty  of  1824  fifty  per 


1  A  very  striking  picture  of  the  diflSculties  surrounding  the  American 
woollen-manufacturer  was  drawn  by  A.  M.  Schenk,  for  a  long  i^eriod  one  of 
the  most  prominent  woollen-manufacturers  in  the  country,  in  a  letter  pub- 
lished in  the  National  Journal,  Washington,  March  24, 1828.  See  letter  on 
Wool  and  Woollens,  34  Niles,  p.  76. 


1812.]  TARIFF   LEGISLATION.  387 

cent;  for  so  much  had  British  legislation  lowered  it.  Had 
this  been  done,  he  maintained,  the  foreign  article  would 
not  have  been  enhanced  to  the  consumer  beyond  its  old 
price,  because  the  addition  to  the  duty  would  have  been 
taken  from  the  cost.^ 

The  most  powerful  adverse  influence,  however,  to 
American  manufacturing,  was  the  auction  S3'stem.  Pre- 
vious to  the  war  of  1812  there  were  but  two  or  three 
auction  establishments  in  New- York  City,  and  their  busi- 
ness was  inconsiderable.  It  was  then  considered  a  dis- 
creditable mode  of  selling  goods,  and  various  methods 
were  practised  for  concealing  the  owner's  name.  Sales  on 
account  of  underwriters,  unsalable  goods  remaining  in  the 
hands  of  importers  at  the  end  of  a  season,  and  occasional 
visits  of  English  agents  with  consignments  from  English 
manufacturers,  were  the  chief  sources  whence  auction 
goods  were  derived.^ 

During  the  war,  when  goods  became  scarce  and  dear, 
the  auction  system  rapidly  grew  to  large  proportions.  As 
goods  could  not  be  imported  direct  from  Europe,  they  were 
obtained  through  neutral  channels,  or  from  Canada  ;  and 
several  houses  were  often  jointly  interested  in  the  same 
importation.  For  this  reason  quick  sales  were  desirable  ; 
and  consequently  package-sales  at  auction  were  intro- 
duced as  the  most  expeditious,  as  well  as  the  most  prof- 
itable, mode  of  disposal.  The  owners  were  frequently 
astonished  at  the  prices  obtained  at  auctions,  and  doubt- 

1  Harrisburg  Convention,  p.  22.  For  history  of  woollen  industry  from 
war  of  1812  to  1828,  see  Niles's  Address  at  Harrisburg  Convention,  p.  18 
et  seq. 

2  Remarks  on  the  Auction  System,  p.  6. 


388      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1816. 

less  buyers  paid  far  more  than  they  would  if  auction-sales 
had  been  prohibited.  With  the  return  of  peace,  large 
quantities  were  imported,  when  neither  the  city  nor  the 
country  stores  had  any  stock  left:  competition  conse- 
quently, among  purchasers,  was  great ;  and  goods  sold  at 
high  prices. 

The  auctioneer  at  this  time  usually  cashed  the  sales: 
thus  the  importer  was  able  to  remit  the  money  immedi- 
ately to  Europe  for  more  goods.  The  facility  which  auc- 
tions furnished  for  forcing  goods  into  the  market,  beyond 
the  actual  wants  of  the  people,  contributed  in  a  great 
degree  to  that  wide-spread  ruin  which  desolated  our 
country  in  1816.  Merchants,  finding  that  they  could  sell 
their  goods  at  auction  with  such  facility,  and  be  ready  for 
another  venture  so  soon,  ordered  twice  as  many  as  they 
would  have  done,  had  they  continued  to  sell  all  their  goods 
in  the  old  way.  This  extraordinary  demand  ceased  late  in 
the  autumn  of  1816,  after  the  merchants  had  laid  in  their 
stocks.  Though  prices  began  to  decline  the  following 
winter,  yet  the  auctions  were  crowded  from  day  to  day, 
till  many  articles  fell  so  low,  that  they  paid  little  more 
than  the  duties.  This  prostrated  almost  every  importer 
and  jobber.  Scarcely  one  of  the  former  class  escaped, 
and  those  of  the  latter  class  who  weathered  the  storm 
were  for  a  long  time  seriously  crippled. 

During  this  time  of  distress  no  orders  were  sent  to 
Europe  for  goods.  They  accumulated,  therefore,  until 
the  manufacturers  were  obliged  to  seek  a  market  for 
them.  Agents  were  accordingly  sent  to  the  United 
States.  They  found  that  the  only  mode  of  sale  open  to 
them  was  by  auction,  which  afforded  great  facilities.    The 


1818.]  TAEIFF   LEGISLATION.  389 

auctioneers  became  their  bondsmen  for  the  duties  at  the 
custom-house,  as  the  law  required  that  the  sureties  should 
be  American  citizens.  The  auctioneers,  also,  by  making 
immediate  advances  on  these  importations,  enabled  the 
manufacturers  to  consign  more  goods,  almost  in  course  of 
post.  Auctioneers  increased  in  number,  wealth,  and  influ- 
ence. They  were  directors  in  nearly  every  bank  in  New 
York,  and  could  thus  obtain  discounts  to  an  indefinite 
amount,  and  control  the  market.  The  first  flight  of 
English  agents  originated  in  necessity,  to  enable  them  to 
sell  their  surplus  stock,  and  was  afterward  continued  for 
profit.  In  1817  and  1818,  when  the  depression  mentioned 
had  subsided,  some  articles  became  scarce.  Agents  were 
now  more  expert,  and  by  constantly  attending  public 
sales,  and  becoming  perfectly  acquainted  with  the  market, 
kept  their  friends  advised  of  every,  change.  So  soon  as 
any  article  sold  at  a  profit,  it  was  instantly  ordered,  and 
transmitted  with  great  rapidity. 

The  American  importer  continued  to  make  attempts  to 
import  goods,  but  these  were  nearly  always  unsuccessful. 
How  could  it  be  otherwise,  when  the  ship  wliich  brought 
goods  that  had  been  specially  ordered  also  brought,  from 
the  same  houses,  other  similar  parcels  that  were  sent  to 
the  auction-room  almost  before  the  importer  had  received 
his  soods  from  the  vessel?  The  manufacturer  took  advan- 
tage  of  the  information  furnished  by  his  American  corre- 
spondent, and,  after  filling  his  order,  also  supplied  his 
customers.^ 

1  Remarks  \ipon  the  Auction  System,  p.  11.  Tlu-  autlior  of  Remarks 
'apon  the  Auction  System,  which  is  ropUno  with  facts  showing  the  injuri- 
ous effect  of  it  to  American  importers,  amouy  his  many  illustrations  of 


390      FINANCIAL  HISTORY  OP  THE  UNITED  STATES.       [1828. 

Between  1810  and  1828  the  goods  sold  in  this  way  in 
New  York  amounted  to  $225,000,000.1  By  the  instru- 
ment of  auctions  the  tariff  barrier  was  weakened,  and 
well-nigh  destroyed.  Manufacturers  regarded  the  auc- 
tion system  with  grave  apprehension.  They  sought  to 
tax  auction-sales  in  order  to  diminish  their  force  and 
frequency.  They  were  taxed  by  the  State  of  New  York ; 
but  a  national  tax  was  ardently  desired  by  many.  Pam- 
phlets and  speeches  constantly  appeared  in  condemnation 
of  the  system,  while  occasionally  a  defence  was  inter- 
posed. Opposition  to  the  system  raged  with  great  fury 
for  many  years.^ 

Another  mode  of  breaking  down  the  tariff  barrier  was 
by  entering  goods  at  fictitious  prices.     How  extensively 

the  fact  stated  in  the  text,  adds  the  following  :  "  In  1825  the  house  in 
which  I  am  a  partner  imported,  in  conjunction  with  a  friend,  two  thousand 
pieces  of  a  certain  description  of  goods.  The  patterns  had  been  sent  by  a 
pre\'ious  conveyance,  with  an  understanding  that  the  goods  would  imme- 
diately follow,  and,  moreover,  that  the  style  was  to  be  reserved  for  our 
sole  use.  The  goods  arrived;  but  the  same  vessel  brought  nearly  five 
thousand  pieces  of  the  same  descrii^tion  of  goods  to  a  certain  house  in 
town,  the  greater  part  of  cloths  inferior  to  ours,  and  charged  at  five  to 
eight  shillings  sterling  per  piece  lower.  These  goods  were  sold  at  auction ; 
and  the  result  of  the  whole  was  simply  this:  we  lost  nearly  two  thousand 
dollars  by  our  adventure,  and  our  English  friends  gained  the  same,  or  a 
greater  ratio,  by  theirs."  The  author  adds,  "  Without  the  rapid  mode  of 
selling  by  auction,  this  fraud  could  not  have  been  perpetrated."  — p.  12. 

1  Remarks  upon  the  Auction  System,  p.  52. 

2  The  two  ablest  pamphlets  against  auctions  were,  perhaps,  Remarks 
upon  the  Auction  System  as  practised  in  New  York,  etc.  (N.  Y.,  1828), 
and  Reasons  why  the  Present  System  of  Auctions  ought  to  be  Abolished 
N.  Y.,  1828).  The  ablest  production  on  the  other  side  was  an  answer  to 
the  last-mentioned  pamphlet,  and  was  entitled  An  Examination  of  the 
Reasons  why  the  Present  System  of  Auctions  ought  to  be  Abolished,  etc. 
(Bait.,  1829). 


1837.]  TARIFF   LEGISLATION.  391 

this  was  done  we  have  no  precise  evidence,  but  there 
are  good  reasons  for  supposing  that  it  was  done  very 
frequently.  "It  was  a  common  custom,  and  one  well 
understood  by  merchants,  that  many  foreign  importers " 
residing  here,  and  who  sold  their  goods  mostly  by  auction, 
were  "  in  the  constant  habit  of  receiving  two  invoices  of 
each  parcel  of  goods."  One  of  these  was  "  made  out  at  a 
very  low  rate,"  and  was  used  to  enter  the  goods :  "  the 
other  contained  the  actual  cost."  Of  course,  the  govern- 
ment was  injured  by  losing  the  revenue  justly  due  to  it, 
while  American  manufacturers  and  importers  suffered  in 
the  ways  mentioned.^ 

Even  when  the  foreign  manufacturer  entered  his  goods 
at  their  cost  to  him,  the  price  was  about  sixteen  per  cent 
lower  than  the  prices  of  similar  goods  entered  by  Ameri- 
can importers.^  This  difference  was  great  enough  to 
work  serious  injury  to  the  American  manufacturer  and 
importer.^  The  foreign  importers,  too,  by  importing  so 
heavily,  fixed  the  general  rule  of  valuation ;  and  the 
American  invoice,  though  ten  to  fifteen  per  cent  higher, 
was  an  exception.  By  thus  importing  directl}-  without 
adding  intermediate  profits,  and  fixing  the  cost  of  goods 
on  the   basis   established   by  foreign    manufacturers,  the 

1  See  Remarks  for  numerous  illustrations. 

2  Proceed.  Gen.  Convention  at  Harrisburg,  1827,  pp.  47-51. 

8  "Not  many  years  since,  the  dry-goods  merchants  were  among  the  most 
numerous  and  important  of  the  mercantile  class.  At  this  moment  the  great 
majority  of  them  are  no  longer  importing-merchants,  but  the  agents  of 
British  manufacturing  houses;  and  our  most  intelligent  merchants  calcu- 
late that  at  least  two-thirds,  both  of  our  export  and  import  trade*  with 
Great  Britain,  is  in  British  hands,  and  on  British  account."  —  Observations 
on  the  Report  of  the  Committee  of  Ways  and  Means,  made  at  Wash.,  March 
12, 1828,  p.  23. 


392      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1825. 

protection  which  our  government  sought  to  maintain 
through  the  tariff  was  overcome. 

It  was  maintained,  too,  that  the  graduated  system  was 
injurious.  As  the  duties  grew  higher,  the  temptation  to 
import  increased,  because  there  was  a  tendency  to  en- 
hance prices  beyond  covering  tlie  additional  tax. 

Soon  after  enacting  the  law,  a  writer  predicted,  "  Our 
woollen-manufacturers,  after  next  month,  will  have  only 
twelve  and  a  half  per  cent  in  their  favor.  In  June, 
1826,  an  additional  five  per  cent  will  be  levied  on  wool ; 
and  should  the  exchange  be  reduced,  an  event  highly 
probable,  our  woollen  manufacture  must  sink  under  the 
competition  of  European  fabrics."  ^  Subsequent  events 
proved  the  truth  of  his  prediction.  Unlike  many  a 
prophet,  he  had  built  upon  unquestioned  facts.  In  the 
first  place,  wool  constituted  nearly  one-half  the  value  of 
the  cloth  produced;  and  the  price  of  domestic  wool  was 
regulated  by  the  price  at  which  foreign  wool  could  be 
imported  and  sold  under  the  existing  duties.  The  coun- 
try supplied  about  one  half  the  quantity  needed :  the 
other  half  was  imported.  The  price  of  domestic  as  well 
as  foreign  wool  was  fifty  per  cent  dearer  in  the  United 
States  than  in  England.  The  duty  thereon  was  thirty 
per  cent ;  on  woollen  cloth,  thirty -three  and  a  third  per 
cent.  The  greater  bulk  of  raw  wool  rendered  the  freight 
and  charges  on  it  nearly  equal  to  the  difference  of  duty 
between  cloth  and  wool.  The  reader  will  see,  therefore, 
as  the  value  of  the  wool  constituted  one-half  of  the  value 
of  the  cloth,  and  as  the  price  of  the  raw  material  was 
fifty  per  cent  dearer  in  the  United  States  than  in   Eng- 

1  New  York  Statesman.    See  Thirteen  Essays,  p.  21. 


1837.]  TARIFF   LEGISLATION.  393 

land,  the  woollen-manufacturers  lost  at  once  the  benefit 
of  one-half  the  duty  on  cloth.  The  duty  on  cloth,  there- 
fore, was  virtually  reduced  from  thirty-three  and  a  tliird 
per  cent  to  one-half  that  amount. 

Even  the  limited  protection  thus  given  was  further 
reduced  by  the  use,  from  necessity,  of  other  foreign 
materials  in  the  manufacture  of  cloth,  which  were  sub- 
jected to  heavy  duties.  Two  of  these  articles,  olive-oil 
and  castile  soap,  were  taxed  fifty  per  cent.  Using  such 
costly  materials,  how  could  the  domestic  manufacturer 
expect  to  compete  successfully  with  those  who  could  buy 
them  at  far  lower  rates?  Blind,  indeed,  was  the  govern- 
ment, in  taxing  raw  materials,  like  castile  soap,  olive-oil, 
and  other  things  not  made  at  home,  but  needed  in  manu- 
facturing, if  truly  desirous  of  encouraging  American 
manufacturers.  Looking  on  the  face  of  this  legislation, 
the  good  will  and  enmity  of  the  government  toward  the 
manufacturers  were  about  equally  mixed.  It  protected 
with  one  hand,  and  smote  with  the  other.  But,  in  the 
interest  of  truth,  it  ought  to  be  said  that  such  incongru- 
ous work  was  the  product  of  ignorance,  rather  than  jeal- 
ousy or  ill  will. 

Weighted  so  heavily  on  every  side,  in  1827  the  manu- 
facturers concerted  measures  for  their  relief.  At  nearly 
every  session  of  Congress  since  1824,  the  need  of  alter- 
ing the  tariff  had  been  made  known  to  Congress ;  but 
nothing  was  done.  In  tlie  summer  of  1827  a  convention 
of  the  friends  of  protection  met  at  Harrisburg  to  consider 
their  situation.  The  object  of  the  meeting  was  to  con- 
centrate facts,  and  to  agree  to  a  tariff  of  duties  whii-li 
should  be  equal  in  its   benefits   and    burdens,  so    far  as 


394      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1838. 

equality  could  be  attained,  in  all  parts  of  the  Union. 
This  body  was  composed,  for  the  most  part,  of  prominent 
manufacturers,  and  the  leading  advocates  of  protection. 
Politically,  a  large  majority  of  the  members  were  the 
friends  of  the  administration,  Mr.  Adams,  and  were  in 
favor  of  his  re-election  ;  but  there  were  others,  also  of 
high  standing,  who  were  openly  and  decidedly  for  Gen. 
Jackson.  The  great  object  of  the  convention  was  to 
reconcile,  if  possible,  the  conflicting  interests  of  the 
friends  of  protection.  This  was  by  no  means  an  easy 
task.  Massachusetts  wished  to  raise  the  duty  on  im- 
ported cotton  and  woollen  cloths,  but,  at  the  same  time, 
desired  to  obtain  her  hemp  and  her  molasses  where  she 
could  buy  cheapest,  whether  the  former  was  grown  in 
Russia  or  Kentucky,  or  the  other  was  purchased  in  the 
West  Indies  or  Louisiana.  On  the  other  hand,  it  was 
quite  immaterial  to  Louisiana,  whether  she  purchased  her 
cotton  and  woollen  cloths  at  Waltham  (in  Massachusetts) 
or  at  Manchester  (in  England),  provided  she  could  obtain 
them  as  cheap  at  one  place  as  the  other.  If  the  manufac- 
turer of  woollen  cloth  were  protected  from  foreign  compe- 
tition, the  wool-grower  insisted  that  he,  too,  ought  to  be 
protected  from  the  competition  of  the  grower  of  coarse 
wool  in  Smyrna,  and  the  producer  of  fine  wool  in  Europe. 
The  convention  at  Harrisburg,  however,  in  a  spirit  of 
mutual  compromise,  agreed  to  a  tariff  of  duties  which  was 
satisfactory  to  the  several  interests. 

Jackson,  during  the  presidential  canvass,  wrote  a 
Janus-faced  letter,  declaring  that  he  was  in  favor  of  a 
"judicious  tariff,"  which,  in  the  North  and  West,  was 
interpreted  as  meaning  protection,  but  in  the  South  was 


1828.]  TAEUFF  LEGISLATION.  395 

construed  differently ;  for,  said  the  politicians  in  that 
section,  no  tariff  can  be  judicious  unless  it  be  for  revenue 
only.  Hammond,  the  biographer  of  Silas  Wright,  says 
that  "the  answer  of  Gen.  Jackson  was  probably  drawn  by 
some  wily  politician;  for  it  does  not  accord  with  the 
frankness  of  a  soldier,  nor  especially  with  the  honest  and 
fearless  independence  of  Andrew  Jackson."  ^ 

Jackson  was  elected.  A  majority  of  the  House  were 
opposed  to  protection ;  and  they  elected  a  speaker,  Mr. 
Stevenson  of  Virginia.  He,  however,  selected  for  chair- 
man of  the  committee  on  manufactures  Mr.  Mallory  of 
Vermont,  who  was  a  national  Republican.  He  possessed 
considerable  talents,  great  candor  and  industry,  and  had 
served  in  the  preceding  Congress  as  chairman  of  the  same 
committee.  But  the  majority  of  the  committee  were 
opposed  to  Mr.  Mallory  and  to  protection.  Silas  Wright 
was  placed  next  on  the  committee,  who  had  hitherto 
acted  with  the  protectionists ;  but  doubtless,  in  placing 
him  there,  Mr.  Stevenson  had  learned  of  Wright's  con- 
version through  Van  Buren,  who  knew  the  opinions  of 
men  immersed  in  politics  better  than  any  man  of  his  day. 

Wright,  and  a  majority  of  the  committee,  were  not 
willing  to  adopt  the  tariff  recommended  by  the  Harris- 
burg  convention,  without  further  investigation.  A  reso- 
lution was  therefore  offered  in  the  House,  emanating  from 
the  same  committee,  to  send  for  persons  and  papers. 
This  resolution  encountered  strong  opposition,  chietl}- 
from  the  protectionists,  who  declared  that  the  chief  ob- 
ject was  to  delay  and  prevent  action  during  the  session. 
On  the  other  side,  it  was  affirmed  that  the  Harrisburg 
1  Polit.  Hist,  of  N.  Y.,  vol.  iii.  p.  101. 


396      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1838. 

convention  liad  probably  presented  only  a  part  of,  the 
facts  relating  to  the  subject,  and  that  a  knowledge  of 
all  of  them  was  necessary  in  order  to  act  intelligently 
thereon. 

When  the  investigation  had  been  completed,  Mallory 
was  in  favor  of  reporting  a  bill  embodying  the  views  of 
the  Harrisburg  convention ;  but  Wright,  and  a  majority 
of  the  committee,  differed  from  him.  Wright  favored  a 
reduction  of  the  duty  on  woollen  cloths,  and  an  increase 
on  wool.  Mallory  contended  that  such  a  change  in  the 
law  would  prevent  the  working  of  the  woollen-factories 
without  loss ;  that,  in  the  event  of  their  suspension,  the 
domestic  market  for  wool  would  be  destroyed ;  that,  on 
the  contrary,  the  encouragement  to  manufacture  woollens 
would  increase  the  demand  for  wool,  and,  of  course,  in- 
crease its  price  in  the  market;  and  that  therefore  the 
scheme  advocated  by  Wright  would,  in  the  end,  be 
fatally  injurious  to  the  wool-grower  himself.^  Wright 
favored  an  increase  of  duty  on  hemp,  flax,  iron,  and  mo- 
lasses, and  a  repeal  of  the  drawback  on  molasses,  which 
had  been  allowed  when  it  was  distilled  into  spirits,  and 

1  "  It  is  an  admitted  fact,  that  our  manufacturers  consume  of  our  native 
wool  to  the  amount  of  about  twelve  million  dollars  annually,  and  that 
they  have  created  such  a  demand  for  that  article,  that  its  price  is  now 
actually  fifty  to  seventy-five  per  cent  above  the  price  of  British  wool.  This 
amounts  to  from  four  to  six  million  dollars,  and  places  that  portion  of  the 
supposed  tax  in  the  pockets  of  the  farmer  instead  of  the  manufacturer  ;  for 
it  will  not  be  contended,  that,  if  the  home  manufacture  be  relinquished, 
the  price  of  wool  will  be  sustained.  In  such  an  event,  he  must  look  abroad 
for  a  market.  That  market  can  only  be  found  in  England;  and  he  must 
sell  it  as  much  lower  than  British  wool  as  the  cost  of  transport  to  that 
country."  —  Observations  on  the  Rep.  of  the  Com.  of  Ways  and  Means,  Phil., 
1828,  p.  24. 


1828.]  TARIFF   LEGISLATION.  397 

in  that  form  exported.  The  bill,  while  highly  favorable 
to  the  South  and  West,  was  very  strongly  opposed  to  the 
interests  of  New  England.  Although  Mallory  reported 
the  bill,  he  did  not  like  it ;  and  its  defence  fell  to  Wright, 
whose  hand  in  framing  it  was  visible  in  every  line.  The 
wool-growers  of  New  York  formed  a  considerable  part  of 
his  constituency ;  and,  if  he  could  get  the  tariff  on  wool 
raised,  he  was  sure  of  satisfying  them,  even  if  he  did 
slaughter  New-England  interests.  His  wool-growing  con- 
stituency did  not  know  enough  to  perceive  that  protection 
of  their  interests  was  useless,  unless  woollen-manufac- 
turers also  were  protected ;  for  the  policy  adopted  by 
Wright  would  have  hastened  the  extinction  of  the  wool- 
len industry.  In  that  event,  the  wool-grower  would  have 
been  entirely  at  the  mercy  of  the  foreign  manufacturer 
for  his  wool-market,  —  a  result  which  would  inevitably 
have  led  to  lower  prices  of  the  product ;  and  this  effect, 
no  tariff,  however  ingeniously'"  constructed,  could  have 
prevented. 

The  debate  was  very  elaborate ;  and  more  ability  was 
evinced,  and  reasons  and  facts  presented,  than  during 
any  previous  or  subsequent  discussion  of  this  subject. 
We  can  only  glance  at  the  leading  points,  some  of  whi(,li 
are  still  worthy  of  study.  In  INIallory's  speech  was  an 
answer  to  the  objection  that  all  duties  on  imports  were 
taxes  on  consumers.  This  was  true,  he  admitted,  as 
to  those  articles  which  were  exclusively  procured  from 
abroad :  it  was  untrue  as  to  such  articles  as  were  pro- 
duced by  domestic  industry,  nearly  or  wholly  sufficient  to 
supply  the  demands.  It  was  supposed  that  we  produced 
cotton  fabrics  to  the  value  of  thirty  millions.     A  great 


398      FESTANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1888. 

proportion  were  valued  at  sixteen  cents  and  under,  the 
square  yard.  The  duties  and  charges  would  be  about  ten 
cents.  Remove  the  protection,  and,  according  to  the  rule 
that  duties  were  a  tax  on  the  consumer,  we  should  be 
furnished  with  the  fabric  at  four  cents  the  running  yard. 
The  absurdity  was  apparent.  Take  a  fabric  valued  at 
nine  cents  the  square  yard :  the  duties  and  charges  would 
be  about  the  same  as  previously  stated.  According  to  the 
rule,  this  fabric  could  be  afforded  to  the  consumer  for 
nothing.  Take  nails :  the  duty  was  five  cents.  The  aver- 
age price  might  be  seven  cents  in  market.  The  consumer, 
by  the  rule  laid  down,  should  have  them  for  two  cents  a 
pound.  The  duty  on  cheese  was  nine  cents  per  pound. 
The  average  value  in  market  was  not  over  seven  cents. 
If  duties  on  the  foreign  articles  were  a  tax  on  the  con- 
sumer, he  was,  in  equity  and  good  conscience,  entitled  to 
two  cents  for  every  pound  he  ate.^ 

1  Richard  Rush  maintained,  that,  "  where  an  article  is  extensively 
mannfactured  in  the  country,  no  tariff  has  ever  produced  any  jierceptible 
effect  upon  the  price  of  the  article.  ,  .  .  The  power  of  production  in  the 
world  is  much  greater  than  the  capacity  for  consumption;  and  hence  there 
is  a  constant  tendency  in  the  supply  to  exceed  the  demand.  Hence  the 
uniform  tendency  to  a  reduction  in  the  price  of  all  articles,  especially 
those  which  the  ingenuity  and  power  of  man  can  multiply  indefinitely. 
This  being  one  of  the  laws  of  nature,  the  permanent  effect  of  a  tariff  of 
ever  so  great  a  per  cent  never  can  be  to  raise  the  price  of  an  article  of  do- 
mestic production.  The  tendency  of  a  tariff  is  to  keep  the  market  at  its 
present  price  by  excluding  a  portion  of  the  foreign  article  until  the  domes- 
tic supply  comes  up  to  the  demand,  which  can  never  be  at  a  very  distant 
period  (unless  there  is  some'natural  impediment  to  the  production  in  that 
particular  country);  and,  when  this  comes  to  be  the  case,  then  prices  com- 
mence again  to  fall.  The  different  tariffs  passed  by  Congress  have  never 
afforded  any  encouragement  to  domestic  manufactures  by  raising  the 
price  of  the  domestic  article  above  what  it  was  at  the  time  the  tariff  was 


1888.]  TARIFF  LEGISLATION.  399 

J.  S.  Stevenson  of  Pennsylvania,  who  was  a  member  of 
the  same  committee,  supported  the  bill ;  and  several  points 
in  his  speech  may  be  profitably  considered.  One  of  these 
related  to  the  time  when  it  was  proposed  the  bill  should 
take  effect.  The  committee  fixed  the  30th  of  the  follow- 
ing June,  not  merely  because  this  time  had  frequently 
been  adopted,  but  because  it  was  believed,  that,  if  any  bill 
were  passed  that  session,  the  time  between  its  passage  and 
that  for  its  going  into  operation  would  not  be  sufficient 
for  notice  of  the  fact  to  be  transmitted  to  Europe,  and  fur 
extensive  importations  to  be  made,  ruinous  to  the  manu- 
facturing interests. 

The  committee  were  convinced  that  the  most  destruc- 
tive principle  of  the  tariff  of  May  23,  1824,  was  that  it  im- 
posed only  part  of  the  duty  on  woollens  on  the  30tli  of 
June,  1824,  and  held  out  an  extraordinary  premium  to 
importation  from  that  time  to  the  30th  of  June,  1825, 
when  a  further  duty  of  three  and  a  third  per  cent  was  to 
be  levied.  The  consequence  was,  that,  instead  of  the  usual 
average  supply  of  eight  and  a  half  millions,  there  Avere 
upward  of  twelve  millions  of  woollens  imported  in  1825 ; 
and  this  produced,  mainly,  the  great  depression  of  182G, 
and  the  destruction  of  some  factories,  and  losses  to  others. 

Referring  to  the  modified  duty  proposed  on  steel,  Mr. 
Stevenson  declared,  that,  during  the  late  war,  it  was  impos- 

passed.  These  tariffs  have  protected  domestic  manufactures  hy  exchiding 
a  portion  of  the  foreign  article,  and  thereby  enabling  the  domestic  manu- 
facturer to  sell  his  products  at  present  prices,  instead  of  selling  them  at 
reduced  prices.  The  effect  of  a  tariff  is  to  prevent  prices  from  falling  so 
fast  as  they  would  fall  but  for  the  tariff.  No  tariff  for  protection  ever 
has  been,  or  probably  ever  will  be,  high  enough  to  enhance  the  prices  of 
the  domestic  product."  —  The  American  System,  Bait.,  1828,  pp.  23,  24. 


400      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1888. 

sible  to  procure  what  was  essential  for  the  defence  of  the 
nation  in  forming  arms ;  and  it  rose  in  price  from  fifteen 
to  seventy-five  cents  per  pound.  It  was  the  special  policy 
of  England,  who  engrossed  the  principal  manufacture,  to 
prevent  its  introduction  into  this  country,  even  by  smug- 
gling. 

The  increase  of  duty  on  molasses  created  strong  opposi- 
tion. Mr.  Hunt  said  it  was  a  fact  well  understood,  that 
the  sugar-plantations  of  Louisiana  afforded  a  greater 
amount  of  profit  than  any  other  branch  of  agricultural 
employment  in  this  country.  Since  the  year  1824,  it  was 
estimated  that  the  production  of  sugar  and  molasses  in 
Louisiana  had  been  doubled ;  and  the  produce  of  the  last 
year  had  swelled  to  the  prodigious  amount  of  eighty  thou- 
sand hogsheads  of  sugar,  and  five  million  gallons  of  mo- 
lasses. This  business,  therefore,  required  no  additional 
aid  or  stimulus  from  the  government.  It  did  not,  like 
many  other  kinds  of  employment,  present  the  melancholy 
spectacle  of  languishment,  ruin,  and  decay,  for  want  of 
protection.  The  duty  upon  this  article  was  manifestly 
unequal  in  its  operation  upon  the  different  sections  of 
the  Union.  The  principal  part  of  the  foreign  molasses 
was  consumed  in  New  England  and  New  York,  and  a  few 
of  the  States  bordering  on  the  Atlantic ;  while,  in  the 
West,  its  consumption  was  small.  The  tax  was  not  only 
principally  paid  by  the  Eastern  States,  but  what  rendered 
its  operation  still  more  severe  and  unequal  was,  that  in 
those  States  the  poorer  part  of  the  population  paid  the 
greater  portion  of  the  tax,  as  they  consumed,  in  pro- 
portion to. their  numbers,  larger  quantities  than  the  rich. 

There  was  another  interest  of  long  standing  —  that  of 


1828.]  TARIFF   LEGISLATION.  401 

distilling  molasses  —  which  would  necessarily  be  ruined 
by  doubling  the  duties,  and  repealing  the  drawback  which 
was  now  allowed  upon  the  exportation  of  the  spirits  thus 
distilled.  Our  commerce,  consequently,  would  be  cur- 
tailed; and  those  on  whom  the  losses  and  ruin  would  fall, 
by  the  interruption  of  this  commerce,  were  not  the  large 
capitalists,  but  laborers,  mechanics,  and  men  of  moderate 
fortunes,  who  had  embarked  in  the  various  branches  of 
business  connected  with  this  trade. 

Mr.  Claiborne  of  Virginia  opposed  the  bill,  especially 
the  amendment  offered  by  Mr.  Mallory,  which  was  sub- 
stantially the  bill  desired  by  the  Harrisburg  convention. 
There  had  been  four  revisals,  —  in  1789,  1816,  1820,  and 
18:14.  These  had  been  invariably  effected  by  compromise. 
To  break  into  the  system  so  frequent!}',  and  extend  the 
duties,  produced  jealous}',  dissatisfaction,  and  strife.  It 
kept  the  price  of  labor  and  property  constantly  fluctuat- 
ing ;  it  unhinged  the  confidence  of  the  people  in  the 
laws;  and  it  disordered  the  circulating  medium  of  the 
country.  The  incessant  advance  in  duties  enticed  people 
to  embark  in  manufacturing  establishments  with  an  im- 
pression that  the  government  would  sustain  them,  at  all 
events,  and  make  their  labor  productive.  The  course  pur- 
sued by  Congress  in  1824  had  led  to  this  renewed  effort  to 
increase  the  duties.  It  was  impolitic,  at  all  times,  for  the 
government  to  interfere  with  the  industry,  labor,  and 
enterprise  of  the  citizen.  If  citizens  were  seduced,  by 
premiums,  into  particular  pursuits,  could  those  premiums 
be  withdrawn  without  a  breach  of  faith?  IIo  held  it  t(» 
be  good  policy  to  let  labor,  commerce,  and  enterprises 
alone.     To  the  system  of  exclusion  he  could  never  agree. 


402      FINANCIAL  HISTOEY  OF  THE  UNITED  STATES.       [1888. 

McDuffie  of  South  Carolina,  one  of  the  ablest  and 
most  eloquent  members  of  the  House,  opposed  the  bill. 
"  There  is  no  part  of  this  whole  scheme  of  delusion,"  he 
said,  "  which  so  strikingly  illustrates  its  true  genius,  and 
so  clearly  demonstrates  its  injustice,  as  this  combination 
of  double  duties,  —  first  taxing  the  raw  material,  and  then 
taxing  the  manufacture  in  a  twofold  degree,  upon  the 
ground  that  you  have  taxed  the  raw  material.  Upon 
what  '  human  principle  '  do  you  lay  a  tax  upon  raw  wool  ? 
Are  not  all  the  other  classes  of  the  community  called 
upon  to  sustain  an  immense  weight  of  indirect  taxation 
in  order  to  build  up  our  woollen  manufactories,  for  the 
professed  purpose  of  providing  a  domestic  market  for 
raw  wool  ?  and  are  we  to  be  told  that  the  wool-growers, 
who  are  to  derive  the  whole  incidental  benefit  of  this 
system,  will  not  consent  to  the  duty  on  woollen  manufac- 
tures laid  for  their  benefit,  unless  you  bribe  them  to  it  by 
a  direct  bounty  on  raw  wool  ?  Was  there  ever  exhibited 
in  human  legislation  a  grosser  inconsistency  ?  And,  like 
all  the  other  impostures  by  which  the  cunning  and  artful 
few  have  made  the  credulous  many  subservient  to  their 
selfish  purposes,  this  system  has  called  into  its  service 
certain  pretended  magical  powers,  by  which  its  worship- 
pers are  taught  to  anticipate  golden  visions  of  prosper- 
ity and  wealth  for  themselves  and  their  country.  No 
enlightened  and  commercial  nation  ever  prospered  by 
attempting  to  control  the  course  of  industry  by  legisla- 
tive bounties  or  restrictions." 

When  the  vote  in  the  House  was  taken,  there  were  a 
hundred  and  five  in  favor  of  the  bill  reported,  and  ninety- 
four   against  it.     Every  member  south  of  the   Potomac 


1828.]  TARIFF    LKGISLATION.  403 

voted  for  the  original  bill  in  preference  to  Mallory's 
amendment.  What  led  them  to  act  so  unanimously  in  op- 
posing it?  Hammond,^  Wright's  biographer,  says,  "The 
bill,  though  the  duties  were  so  high  on  some  articles  as 
would,  it  was  believed,  wholly  exclude  their  importation 
from  abroad,  bore  with  relentless  and  almost  ruinous 
severity  on  New  England.  The  high  duty  on  coarse 
Smyrna  wool,  which  was  used  in  the  manufacturing  of 
negro  cloths,  would,  it  was  apprehended,  exclude  its  im- 
portation, and  deprive  the  woollen-factories  of  that  lucra- 
tive branch  of  their  business;  the  price  of  hemp,  iron, 
and  cordage,  it  was  feared,  would  be  so  enhanced  as  to 
greatly  check  the  business  of  ship-building ;  and  the  duty 
on  molasses  —  an  article  for  the  consumption  of  which 
the  Yankee  nation  have  long  been  celebrated,  great  quan- 
tities of  which  were  by  the  Eastern  people  distilled  into  a 
species  of  spirit  called  New-England  rum,  and  exported  — 
was  regarded,  and  perhaps  justly  so,  as  peculiarly  oppress- 
ive to  the  eastern  section  of  the  Union.  The  South 
wished  to  defeat  any  bill  for  protection,  and  were  deter- 
mined in  a  body  to  vote  against  the  final  passage  of  any 
bill  which  favored  the  protective  policy.  If,  therefore, 
the  bill  reported  by  the  committee  on  manufactures  could 
be  made  so  unpalatable  to  the  members  from  New  Eng- 
land as  to  induce  them  to  vote  against  it,  their  vote, 
together  with  the  united  Southern  vote,  would  cause  its 
rejection." 

In  the  Senate,  Benton  advocated  the  continuance  of 
the  duty  on  molasses  as  an  indirect  encouragement  to  the 
farmins:   interest.     It  would  enable  the  distillers  of   the 

1  Polit.  Hist,  of  N.  Y.,  vol.  iii.  p.  109. 


404      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1838. 

Western  country  to  compete  with  those  in  the  Eastern 
States,  who  distilled  from  molasses.  This  feature  of  the 
bill  gained  the  support  of  the  senators  from  Kentucky, 
but  encountered  the  opposition  of  Senator  Parris  of 
Maine,  who  declared  the  effect  of  the  bill  would  be  to 
diminish  materially  the  importation  of  molasses :  indeed, 
the  avowed  object  of  the  bill,  he  declared,  was  to  diniiii- 
ish  it  for  the  purpose  of  making  way  for  the  molasses 
of  the  Southern,  and  the  whiskey  of  the  Middle  and 
Western  States.  Such  a  result  would  destroy  the  West- 
India  trade  of  New  England. 

Mr.  Hayne  of  South  Carolina  declared  that  in  this 
business,  from  beginning  to  end,  the  interests  of  the 
South  had  been  shamefully  sacrificed.  The  system  of 
protective  duties  had  created  discordant  feelings,  strife, 
jealousy,  and  heart-burnings,  which  never  ought  to  exist 
between  the  two  different  sections  of  the  same  country. 

It  was  during  this  debate  that  Webster  first  became  an 
advocate  for  protection.  "  The  present  measure,"  he  said, 
"  is  pronounced  to  be  exclusively  for  the  benefit  of  New 
England,  to  be  brought  forward  by  her  agency,  and  de- 
signed to  gratify  the  cupidity  of  her  wealthy  establish- 
ments. .  .  .  The  opinion  of  New  England  up  to  1824  was 
founded  in  the  conviction,  that,  on  the  whole,  it  was  wisest 
and  best,  both  for  herself  and  others,  that  manufactures 
should  make  haste  slowly.  She  felt  reluctance  to  trust 
great  interests  on  the  foundation  of  government  patron- 
age. But  the  Act  of  1824  settled  the  policy  of  the  coun- 
try. What,  then,  was  New  England  to  do  ?  Was  she  to 
deny  herself  the  use  of  her  advantages,  natural  and 
acquired?    Was  she  longer  to  resist  what  she  could  no 


1828.]  TARIFF   LEGISLATION.  405 

longer  prevent,  or,  seeing  the  policy  of  the  government 
thus  settled  and  fixed,  to  accommodate  to  it,  as  well  as 
she  could,  her  own  pursuits  and  her  own  industry  ?  " 

Foot,  of  Connecticut,  sought  to  amend  the  bill  by  taking 
off  the  duty  from  hemp,  cotton  bagging,  molasses,  and  for- 
eign distilled  spirits.  This  amendment  provoked  sliarp 
criticism,  especially  from  Johnson  of  Kentucky,  who 
inquired,  if  these  articles  were  exempted  from  duty, 
what  remaining  interest  had  the  West  in  this  long-ex- 
expected  tariff? 

Benton  proposed  to  amend  the  bill  by  imposing  a 
duty  of  twenty-five  cents  a  pound  on  indigo.  He 
declared  that  his  object  in  doing  this  was  two-fold, — 
first,  to  place  the  American  system  beyond  the  reach 
of  its  enemies  by  procuring  a  home  supply  of  an  article 
indispensable  to  its  existence ;  and,  next,  to  benefit  the 
South  by  resuming  the  cultivation  of  one  of  its  ancient 
and  valuable  staples.  Another  object  in  offering  his 
amendment  was  to  secure  the  support  of  the  South- 
Carolina  senators;  and  he  succeeded  in  getting  the 
vote  of  one  of  them. 

The  duty  on  sugar  and  molasses  was  long  and  ably 
debated ;  and,  among  other  speeches,  Benton  made  one 
replete  with  facts  and  inductions.  He  brought  the  fact 
to  the  surface,  that,  when  the  first  tariff  was  enacted  in 
1790,  brown  sugar  was  rated  at  one  cent  per  pound,  and 
a  gallon  of  molasses  at  eight  cents,  on  the  theory  that 
a  gallon  of  molasses  was  admitted  to  be  equal  in  weight, 
and  superior  in  saccharine,  to  eight  pounds  of  sugar.  The 
important  fact,  which  was  admitted,  that  four-fifths  of  the 
molasses  imported  into  New  England  was  consumed   as 


406      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1838. 

sugar,  suggested  grave  questions  to  the  American  states- 
man concerning  our  revenue,  the  equal  distribution  of 
our  taxes,  and  the  preservation  of  a  market  for  our 
domestic  sugar  and  molasses. 

Woodbury  moved  to  amend  the  bill  by  inserting  "  on 
all  manufactures  of  silks  from  countries  this  side  the  Cape 
of  Good  Hope  twenty  per  cent  ad  valorem.''''  The  silks  of 
India  were  paid  for  mostly  in  specie,  and  were  brought 
in  a  few  ships ;  while  those  from  Europe  were  chiefly 
obtained  in  exchange  for  cotton,  tobacco,  and  other  sta- 
ple articles  of  agriculture,  and  gave  occupation  directly 
to  a  much  larger  amount  of  tonnage.  Moreover,  the 
proposed  tax  was  laid  on  a  luxury,  and  the  change  was 
in  exact  conformity  with  the  recommendation  of  the  com- 
mittee on  manufactures  in  1824 ;  and  the  experience  of 
three  years  had  shown  the  benefits  of  the  discrimination. 

Many  amendments  were  offered  to  the  bill  during  the 
discussion ;  but  it  finally  passed  the  Senate  by  a  vote  of 
26  to  21,  Hayne  voting  against  it.  The  House  finally 
concurred  in  the  Senate  amendments ;  and  thus  the  bill 
became  a  law,  —  a  bill  Avhich  many  have  been  pleased  to 
call  "  a  bill  of  abominations."  ^  At  the  next  session  an 
unsuccessful  attempt  was  made  to  repeal  it.  Wright  was 
among  the  foremost  in  opposing  its  repeal. 

Tliis  law  marked  top-high  w^ater  in  the  history  of  Amer- 
ican tariff  legislation.  The  Act  of  1816  did  not  protect 
enough ;  nor  did  the  Act  of  1824.  The  experiment  of  pro- 
tecting was  now  to  be  carried  to  the  highest  point  it 
ever  reached. 

Many  opposed  an  increase  of  the  duties,  believing  that 
1  May  19, 1828,  20  Cong.,  first  session,  chap.  55. 


1838.]  TAEIFF   LEGISLATION.  407 

prices  would  be  raised,  and,  consequently,  that  a  heavier 
burden  would  be  borne  by  the  consumer.  But  importers 
were  doomed  to  a  very  serious  disappointment.  Instead 
of  getting  more  for  their  goods,  they  were  obliged  to  sell 
them  at  a  lower  figure  than  before ;  and  their  losses,  espe- 
cially on  those  which  were  received  after  the  Act  went 
into  operation,  were  very  heavy,  —  so  great,  indeed,  that 
they  petitioned  to  Congress  for  relief.  They  desired  to 
have  the  additional  duties  refunded  on  all  goods  received 
after  the  enactment  of  the  law,  which  had  been  ordered 
previously  to  that  event.  A  large  number  of  the  Boston 
firms  declared  in  their  petition  to  Congress,  "  Upon  the 
passage  of  the  Act,  many  persons  supposed  that  those 
manufactures  on  which  the  duty  was  increased  would 
immediately  rise  in  the  market,  and  command  prices  pro- 
portionate to  the  increase  of  duty;  and,  at  the  first  view 
of  the  subject,  such,  perhaps,  would  appear  as  the  natural 
result.  Such,  however,  was  not  the  effect  of  the  tariff 
of  Ma}',  1828 ;  for,  instead  of  advancing,  most  if  not 
all  of  the  principal  articles  of  cotton,  worsted,  and 
woollen  goods,  on  which  the  duty  was  increased,  rather 
declined  than  improved  in  price  after  the  passage  of 
the  tariff  Act  of  May,  1828,  and  would  not,  in  uuiiiy 
cases,  bring  so  much  in  market  as  they  had  done 
the  year  previous  under  the  old  duty."  ^  Samuel  I). 
Bradford,  a  very  extensive  importer,  said,  "Nothing 
can  be  more  certain  than  that  the  extra  duty  laid  in 
1828  came,  nearly  all  of  it,  out  of  the  pockets  of  the 
importers. 

"  Some  cases  may  have  arisen  where  some  kinds  of  goods 

1  Ex.  Doc.  No.  13,  22  Cong.,  second  session. 


408      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1S3S. 

sold,  after  the  tariff  was  passed,  higher  than  before ;  and 
certainly,  if  this  had  not  been  the  case,  many  importers 
would  have  lost  half  their  capitals.  But  the  advance  was 
on  articles  on  which  the  extra  duty  amounted  to  an  in- 
crease of  forty  and  a  hundred  per  cent;  and  it  may  be 
truly  and  safely  asserted,  that,  in  all  such  eases,  the  ad- 
vance realized  was  only  a  fractional  part  of  the  extra  duty 
imposed.  The  doctrine  of  Niles  was,"  Bradford  confessed, 
"for  once  verified,  that  laying  a  high  dut}^  often  lowers 
the  piice  of  an  article,  and  reducing  the  duty  increases 
its  value."  ^ 

What  was  the  cause  of  this  decline?  Bradford  said, 
"  We  are  very  sorry  to  find  that  any  gentleman  should 
have  come  to  the  conclusion  that  the  decline  in  prices  of 
goods  in  1828  arose  in  consequence  of  overstocked  mar- 
kets, and  that  the  cause  of  this  overstock  was  an  expec- 
tation, on  the  part  of  the  merchants,  that  the  duties 
would  be  increased,  and  that  increased  orders  were  sent 
abroad  for  goods  in  consequence  of  this  expectation. 
The  very  reverse  of  this  is  the  fact.  The  imports  in  the 
summer  of  1828,  and  in  the  autumn  of  that  year,  were 
not  large  by  any  means,  nor  upon  an  increased  scale ; 
and  it  is  a  well-known  fact,  that  very  few  persons  believed 
that  the  tariff  Act  of  1828  would  pass,  until  they  read 
its  passage  in  the  public  prints  of  the  day ;  and  we  are 
confident,  that,  if  any  person  believed  it  would  pass  at  all, 
there  was  not  a  merchant  in  this  country  who  ever  con- 
ceived for  a  moment  that  it  would  commence  its  action 

1  "We  have  given  these  somewhat  lengthy  extracts  from  Bradford,  be- 
cause, as  he  was  a  prominent  free-trader,  the  reader  will  not  imagine  that 
his  views  were  colored  with  protective  ideas. 


1829.1  TARIFF   LEGISLATION.  409 

at  once.  All  supposed  that  four  to  twelve  months  would 
be  allowed  for  the  merchants  to  prepare  for  so  great  or 
sudden  a  change,  as  had  been  done  upon  all  previous 
occasions."  No  Boston  importer  was  able  to  trace  the 
cause  of  the  decline  in  prices  in  1828.  They  were 
sure,  however,  that  it  was  not  caused  by  an  increased 
importation,  founded  on  the  expectation  of  a  higher 
tariff. 

They  failed  to  obtain  the  relief  sought,  but  they 
persevered.  Even  as  late  as  the  second  session  of  the 
twenty-fifth  Congress  they  renewed  their  efforts,  but 
the  committee  of  the  House  reported  unfavorably :  nor 
did  they  ever  succeed  in  their  object.^  There  was,  in 
truth,  no  good  reason  for  refunding  the  duties. 

1  House  Report  No.  1013,  25  Cong.,  second  session.  Even  in  1843  several 
importers  .sought  to  have  the  duties  refunded  on  goods  imported  after  the 
law  of  1828  went  into  effect,  but  which  were  ordered  previously  to  its  en- 
actment. They  claimed  that  they  did  not  have  time  to  countermand  the 
order  after  the  law  was  passed,  and  thus  prevent  their  arrival  before  its 
operation  began. 

The  committee  found  that  various  cases  of  a  similar  character,  amount- 
ing nearly  to  four  hundred  thousand  dollars,  had  been  presented  to  Con- 
gress between  the  years  183;}  and  1836;  and  they  appended  a  report  of  tlie 
Committee  of  Ways  and  Means  on  the  subject,  made  in  1838.  In  this  the 
committee  say  they  "  can  see  no  just  ground  for  relief.  If  the  increase  of 
duty  did  not  produce  a  corresponding  increase  in  the  price  of  the  goods  in 
our  market,  according  to  the  accustomed  laws  of  trade,  it  must  have  been 
owing  to  extraordinary  causes,  and  was  the  misfortune  of  the  importers, 
and  by  no  means  the  fault  of  the  government.  Other  causes  might  have 
produced  commercial  prosperity  in  tlie  country,  which  would  have  enabled 
these  importers  to  sell  their  goods  at  an  advance  far  above  the  increa.sed 
duty;  and  the  importations,  instead  of  being  a  losing,  would  have  been 
a  very  profitable  speculation.  It  is  a  risk  which  merchants,  in  common 
with  all  others,  must  run;  and  it  would  be  of  evil  tendency  to  make  the 
government  a  guaranty  for  the  loss  upon  such  enterprises."  The  entire 
report  is  worthy  of  perusal. 


410      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1830. 

Prices  at  this  time  fell,  because  production  was  very 
much  enlarged,  and  the  volume  of  money  was  contract- 
ing. The  contraction  was  caused  by  the  outflow  of  specie 
to  pay  for  imports.^ 

The  national  debt  was  paid  so  rapidly,  that  a  reduction 
of  the  tariff  became  necessary ;  and  to  that  end,  in  May, 
1830,  Mr.  Clay  submitted  the  following  resolution  :  "  That 
the  existing  duties  upon  articles  imported  from  foreign 
countries,  and  not  coming  in  competition  with  similar  arti- 
cles made  or  produced  within  the  United  States,  ought  to 
be  forthwith  abolished,  except  the  duties  upon  wines  and 
silks,  and  that  those  ought  to  be  reduced;  and  that  the 

1  Nicliolas  Biddle  wrote  in  April,  1828,  concerning  the  scarcity  of 
money;  "1.  There  was  a  constant  tendency  in  banks  to  lend  too  much 
money,  and  to  put  too  many  notes  in  circulation.  2.  The  increase  of 
the  mixed  mass  of  money  generally  raises  the  price  of  all  commodities. 
3.  When,  therefore,  you  buy  of  foreigners  more  than  they  buy  of  you,  as 
they  cannot  take  the  paper  part  of  the  currency,  they  must  take  the  coin 
part.  4.  The  law  of  a  mixed  currency  of  coin  and  paper  is,  that  when, 
from  superabundance  of  the  mixed  mass,  too  much  of  the  coin  leaves  the 
country,  the  remainder  must  be  preserved  by  diminishing  the  pajier.  5. 
We  therefore  get  back  our  coin  by  diminishing  our  jjaper;  and  it  will  stay 
until  drawn  away  by  another  superabundance  of  paper.  6.  Such  is  the 
fact,  and  such  is  the  circle  a  mixed  currency  is  always  describing." — Na- 
tional Gazette,  Phil.,  April  10. 

Ingham,  in  his  annual  report  as  secretary  of  the  treasury,  at  the  close  of 
1829,  made  some  very  thoughtful  remarks  on  this  subject:  "A  total  revo- 
lution is  taking  place  in  many  of  the  productive  employments  through- 
out the  civilized  world.  The  improvements  in  science  and  arts,  no  longer 
interrupted  by  war,  have  been  directed  to  other  objects,  and  have  so  in- 
creased the  power  of  production,  that  the  tide  of  prices,  which  had  been 
long  on  the  flood,  is  gradually  ebbing,  even  under  a  depreciated  currency. 
Tlic  rehitive  values  between  labor  and  products  have  also  changed,  but  are 
iiDt  yet  adjusted.  The  depression  of  prices,  falling  unequally  on  the  dif- 
ferent species  of  property,  is  ruinous  to  many,  and  repugnant  to  the  feel- 
ings even  of  those  who  do  not  really  suffer.    It  may  be  long  before  a 


1830.]  TARIFF   LEGISLATION.  411 

committee  on  finance  be  instructed  to  report  a  bill  accord- 
ingly." Hayne  moved  an  amendment  by  striking  out  all 
after  the  word  "  countries,"  and  inserting  these  words : 
"be  so  reduced,  that  the  amount  of  the  public  revenue 
shall  be  sufficient  to  defray  the  expenses  of  government 
according  to  their  present  scale,  after  the  payment  of  the 
public  debt ;  and  that,  allowing  a  reasonable  time  for  the 
gradual  reduction  of  the  present  high  duties  on  the  arti- 
cles coming  into  competition  with  similar  articles  made  or 
produced  within  the  United  States,  the  duties  be  ulti- 
mately equalized,  so  that  the  duty  on  no  article  shall,  as 
compared  with  the  value  of  that  article,  vary  materially 
from  the  general  average." 

Clay's  resolution  was  warmly  debated.  His  own  speech 
was  the  ablest  and  most  finished  of  all  the  speeches  that 
he  ever  delivered  on  this  question,  which  had  no  other 
more  ardent  and  unflinching  champion. 

The  resolution  passed  the  Senate ,  and  afterward  the 
committee  on  manufactures  reported  a  bill  in  conformity 
with  it,  which  was  laid  on  the  table.     Then  the  matter 

proper  adjustment  of  these  values  removes  the  evil;  and  until  then  the 
busy  world  will  be  agitated  bj'  the  convulsive  struggles  of  its  various  in- 
terests, each  to  avert  from  itself,  and  throw  upon  others,  the  impending 
adversity.  The  ramifications  of  these  connecting  and  conHicting  opera- 
tions are  so  complicated,  that  it  may  be  doubted  whether  any  degree  of 
intelligence,  however  free  from  the  influence  of  special  interests,  could,  by 
tlie  exercise  of  a  political  power,  materially  lessen  the  evil.  The  active 
energies  of  man,  stimulated  by  necessity,  emulation,  and  love  of  wealth, 
are  perhaps  the  agents  most  to  be  relied  upon  in  maintaining  a  salutary 
equilibrium  in  the  various  operations  of  human  enterprise.  Every  new 
disposition,  therefore,  of  the  money  power,  to  be  safe,  should  bo  gradual, 
and  requires  great  caution  to  avoid  increasing  the  unequal  and  irregular 
action  which  is  so  obviously  prejudicial  both  to  individual  aud  public 
welfare."    - 


412      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1830. 

slept  until  January,  1832,  save  that  in  1830  the  duties  on 
tea,  coffee,  salt,  and  molasses,  were  reduced.^ 

1  This  Act  was  to  go  into  operation  at  the  beginning  of  1832.  Near  the 
close  of  the  previous  year  (1831)  a  large  nnmber  of  tea  importers  pre- 
sented memorials  to  Congress,  praying,  that,  if  the  duty  on  tea  was  re- 
duced, the  law  should  go  into  effect  as  soon  as  passed.  They  wrote  to 
the  secretary  of  the  treasury  about  the  matter,  and  he  rej)lied  that  he  did 
not  deem  it  wise  to  reduce  the  duties  on  tea.  But  he  added,  further,  "  It 
is  believed,  moreover,  that  the  principal  benefits  of  the  proposed  reduc- 
tion would  be  conferred  on  the  importer  rather  than  the  consumer.  If,  as 
is  understood  to  be  the  fact,  there  is  a  small  quantity  of  tea  in  the  hands 
of  the  retail  dealers,  it  might  not  follow  that  the  prices  either  of  that  now 
in  bond,  or  of  that  ordered  for  importation,  would  fall  in  proportion  to 
the  reduction;  whereas  the  importer  can  suffer  neither  loss  nor  incon- 
venience from  the  operation  of  a  law  with  a  view  to  which  his  business 
has  been  regulated  for  more  than  a  year  past."  —  Sen.  Doc.  No.  4,  22  Cong., 
first  session. 


1833.]  TARIFF   LEGISLATION.  41  o 


CHAPTER  V. 

TARIFF   LEGISLATION. 
1832-1842. 

When  Clay  introduced  his  resolution  for  the  modifica- 
tion of  the  tariff,  on  the  9th  of  January,  1832,  it  was 
referred  to  the  committee  on  manufactures.  Dickerson  of 
New  Jersey  was  chairman.  His  report  ^  was  very  brief, 
but  is  well  worthy  of  consideration.  The  second  inquirv 
proposed  by  the  committee  was,  how  far  might  duties  l)e 
abolished  or  reduced,  so  that  only  enough  revenue  should 
accrue  to  defray  the  ordinary  expenditures  of  the  govern- 
ment after  the  payment  of  the  national  debt,  and  yet 
be  so  equalized  as  to  render  them  efficient  for  the  pur- 
poses of  their  imposition.  These  purposes  were  to  raise 
a  sufficient  revenue  for  all  the  exigencies  of  the  govern- 
ment, and  to  give  an  adequate  protection  to  those  manu- 
factures which  it  was  intended  incidentally  to  !)rott'it 
by  the  imposition  of  the  duties  recommended,  'i'lie  roni- 
mittee  maintained  that  the  duties  imposed  on  imports 
might  be  so  reduced  or  abolished,  that  the  revenue  would 
not  be  more  than  adequate  to  the  exigencies  of  the  gov- 
ernment, after  the  extinction  of  the  public  debt ,  tluit 
this  reduction  might  take  place  largely  by  the  total  aboli- 

1  Sen.  Doc.  No.  116,  22  Cong.,  first  aossion. 


414      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1833. 

tion  of  duties  on  many  articles,  and  their  repeal  in  part 
on  many  others,  not  produced  or  manufactured  in  this 
country,  or  which  did  not  require  the  protection  of  our 
laws,  and  also  by  reducing*  the  duties  on  protected  arti- 
cles by  such  modifications  and  arrangements  as  should 
secure  to  them  a  support  equivalent  to  that  which  the  laws 
then  afforded  them.  They  believed  that  no  ultimate  equal- 
ization of  duties  could  be  adopted,  without  the  most 
serious  injury  to  the  country,  which  should  leave  our 
manufacturers  without  adequate  protection.  They  then 
made  an  estimate  of  reductions,  —  chiefly  on  coffee  and 
tea,  but  including  spices,  fruits,  indigo,  gums,  dye-stuffs, 
etc.,  —  amounting  to  15,660,000. 

The  secretary  of  the  treasury  had  previously  expressed 
his  views  on  the,  subject,  and  so  had  the  President,  in 
favor  of  lowering  and  equalizing  the  duties.  In  the 
House  two  reports  were  made,  —  one  by  the  Committee  of 
Ways  and  Means,  of  which  McDuffie  was  chairman,  to- 
gether with  an  adverse  report ;  ^  and  another  by  the  com- 
mittee on  manufactures.^ 

The  former  report  was  elaborate,  and  favored  a  reduc- 
tion of  duties.  McDuffie  had  long  been  zealously  inclined 
toward  a  scheme  of  duties  levied  purely  for  revenue,  and 
he  had  never  failed  to  urge  his  views  on  every  fit  occasion. 
No  one  questioned  either  his  sincerity  or  ability;  but 
his  logic  was  sometimes  faulty,  and  led  him  to  unsound 
conclusions. 

It  was  conceded  by  every  one  that  a  reduction  of  the 
rovenue  was  needful :  the  only  question  was,  How  should 

1  No.  'J79,  containing  also  adverse  report,  22  Cong.,  first  session. 
-  ^'o.  481. 


1832.]  TARIFF    LEGISLATION.  415 

the  reduction  be  effected  ?  We  have  already  shown  what 
was  Chiy's  idea  concerning  the  way  of  making  it,  with 
whom,  essentially,  all  who  were  in  favor  of  protection 
agreed.  The  views  of  the  other  party  were  expressed  in 
McDuflfie's  report,  and  formed  the  groundwork  of  the  bill 
reported,  which  imposed  a  duty  of  twelve  and  a  half  per 
cent  ad  valorem  on  all  foreign  merchandise,  with  the  ex- 
ception of  such  articles  as  were  already  admitted  free 
of  duty,  or  at  a  duty  of  less  than  twelve  and  a  half  per 
cent.  The  bill  provided,  however,  for  a  gradual  reduction 
of  the  duties  on  such  imports  as  came  in  competition  with 
domestic  manufactures. 

The  committee  declared,  that,  in  adopting  a  general 
system  of  ad  valorem  duties,  they  had  been  governed 
principally  by  two  considerations.  The  first  was,  that 
it  levied  the  same  tax  on  articles  of  inferior  quality,  con- 
sumed by  the  poorer  classes,  as  it  levied  on  similar  articles 
of  the  very  best  quality  and  highest  price,  consumed 
almost  exclusively  by  the  more  wealthy  classes.  While 
the  poor  man,  for  example,  who  consumed  low-priced 
French  wines,  was  made  to  pay  fifty  or  a  hundred  per 
cent  on  their  value,  the  wealthy  man  paid  only  twenty- 
five  or  fifty  per  cent  on  the  value  of  the  high-priced 
wines,  which  gratified  his  taste  for  luxurious  indulgence. 
The  same  remark  was  applicable  to  tea,  coffee,  sugar,  and, 
indeed,  to  almost  every  article  then  subject  to  a  specific 
duty.  The  other  ground  of  preference  for  ad  valorem  over 
specific  duties  was  the  perpetual  fluctuation  in  the  price 
of  articles  of  the  same  denomination  and  quality.  A  fall 
in  the  price  of  an  article  increased  the  rate  of  taxation 
contrary  to  the  intention  of  the  Legislature.     There  was, 


416      FINANCIAL  HISTOEY  OF  THE  UNITED  STATES.       [1838. 

therefore,  silent  legislation  by  the  revolutions  of  trade 
changing  so  entirely  the  enactments  of  Congress,  that 
a  duty  had  swelled  to  one  hundred  per  cent,  which  was 
only  twenty-five  per  cent  when  originally  imposed.  These 
w*ere  strong  objections  to  the  existing  system. 

The  committee  then  considered  very  elaborately  why 
taxes  should  be  levied  equally,  and  advanced  the  further 
proposition,  that,  "  whether  the  duty  be  laid  upon  the  ex- 
port or  the  import,  it  is  equally  laid,  in  both  cases,  upon 
the  production  of  the  planter.  There  cannot  be  a  more 
palpable  and  delusive  error  than  the  vulgar  notion  that 
imported  manufactures,  which  have  been  purchased  by 
the  agricultural  staples  of  this  country,  are  foreign  pro- 
ductions." The  document  throughout  was  a  piece  of 
reasoning  evidently  woven  by  McDuffie,  and  displaying 
his  views  with  perfect  clearness. 

The  minority  report  was  signed  by  two  members  of  the 
committee ;  and,  if  their  reasoning  was  not  so  brilliant  as 
that  contained  in  the  report  of  the  majority,  facts  were 
more  abundantly  given.  Among  other  propositions  an- 
swered was  the  one  relating  to  specific  duties ;  namely, 
that  a  fall  in  the  price  of  an  article  increased  the  rate  of 
taxation,  and  therefore  what  was  a  reasonable  duty,  when 
first  imposed,  became  oppressive  as  the  value  of  the  article 
diminished.  The  soundness  of  this  objection,  said  the  com- 
mittee, might  be  shown  by  a  few  familiar  examples.  Cut- 
nails  were  formerly  from  ten  to  twelve  ceuts  the  pound : 
there  was  a  specific  duty  on  them  of  five  cents ;  and,  under 
this  duty,  competition  had  brought  down  the  price  to  six 
cents  per  pound,  which  was  but  little  more  than  half  what 
they  formerly  cost.     According  to  the  objection,  tliis  duty 


1833.]  TARIFF   LEGISLATION".  417 

might  have  been  a  reasonable  one  when  first  imposed, 
but  was  an  odious  tax,  when,  under  its  protection,  we 
could  get  nails  for  nearly  one-half  the  former  price.  Sup- 
posing the  duty  were  a  "  tax  "  in  the  sense  generally  used, 
we  ought  to  get  them  for  one  cent  a  pound  if  the  tax 
were  taken  off :  but  it  would  be  difficult  to  believe  this ; 
because  under  a  lower  rate  of  duty,  and  when  our  princi- 
pal supply  was  from  foreign  workshops,  we  were  obliged 
to  pay  ten  and  twelve  cents  for  what  our  own  workmen 
now  turned  out  for  six  cents.  Lead  formerly  cost  from 
six  to  eight  cents  a  pound:  the  duty  was  three  cents, 
specific ;  and  the  present  price  was  far  below  the  former. 
Common  window-glass  formerly  cost  from  ten  to  fourteen 
dollars  a  box :  it  was  subject  to  a  specific  duty  of  three 
dollars  and  a  half  per  hundred  feet,  and  now  sold  at  from 
four  dollars  to  four  dollars  and  a  half  per  box.  Brown 
sugar  formerly  cost  fourteen  dollars  per  hundredweight : 
it  was  subject  to  a  specific  duty  of  three  cents  per  pound ; 
and  the  present  price  was  about  seven  dollars  or  seven 
dollars  and  a  half  per  hundredweight,  —  about  one-half  the 
former  price.  The  duties  on  certain  kinds  of  iron  were 
specific.  Twelve  years  ago  bar-iron  sold  at  Pittsburg  for 
a  hundred  and  ninety  to  two  hundred  dollars  a  ton :  under 
the  protection  of  a  specific  duty,  the  price  had  fallen  to  a 
hundred  dollars  per  ton.  Hoop-iron  formerly  was  two 
hundred  and  fifty  dollars,  and  was  now  a  hundred  and 
twenty  dollars.  Sheet-iron  was  sold  for  eighteen  dollars 
a  hundredweight,  and  was  now  eight  dollars  and  a  half. 
Cotton  bagging  was  subject  to  a  specific  duty :  the  price 
formerly  was  twenty-six  cents,  and  had  now  fallen  to 
sixteen  cents   per  yard.     The  minimum   duty  on  coarse 


418      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1838. 

cotton  goods  was,  in  effect,  a  specific  duty  of  eight  cents 
and  three-quarters  a  square  yard :  the  price  formerly  was 
twenty  and  twenty-five  cents.  The  like  goods,  or,  rather, 
goods  of  much  better  quality,  were  now  furnished  for 
about  eight  cents  a  yard.  If,  therefore,  the  protecting 
duty  of  eight  cents  and  three-quarters  were  a  tax,  to 
that  extent  the  fabric  ought  to  be  obtained  for  less 
than  nothing,  if  the  tax  were  repealed.  In  truth,  the 
people  were  not  taxed,  so  the  committee  maintained, 
in  these  cases,  unless  it  was  by  having  their  supplies 
furnished  by  American  workmen,  —  ia  many  instances, 
at  one-half  the  price  that  was  formerly  paid  for  simi- 
lar articles  when  our  market  was  controlled  by  for- 
eigners. 

But  even  if  the  same  duty  were  levied  on  all  things,  the 
minority  contended,  the  burden  of  taxation  would  not  be 
equally  distributed.  Insurance,  transportation,  and  other 
charges  connected  with  the  moving  of  goods,  were  also  a 
tax ;  and  this  was  heaviest  on  those  articles  of  merchandise 
containing  the  greatest  weight  and  bulk.  Therefore  it 
would  follow  that  the  cheapest  articles  would  receive  the 
most  protection ;  and  the  dearest  articles,  on  which  the 
heaviest  duties  ought  to  be  levied,  would  pay  the  least. 
A  hogshead  of  molasses  would  bear  a  heavy  duty ;  and  a 
piece  of  silk  costing  the  same  would  bear  a  much  lighter 
burden. 

Both  reports  discussed  the  subject  very  thoroughly, 
while,  in  the  third  report,  emanating  from  the  committee 
on  manufactures,  of  which  John  Quincy  Adams  was  chair- 
man, the  subject  was  treated  historically  ;  and  the  views 
of  the  secretary  of  the  treasury,  and  the  bill  which  he  had 


1832.]  TARIFF   LEGISLATION.  419 

prepared,  embodying  them  in  legal  form,  were  fully  con- 
sidered.i 

McDuffie,  when  reporting  his  bill  to  the  House,  de- 
clared, among  other  things,  that  "  the  people  of  the  South 
were  firmly  impressed  with  the  belief,  that,  under  any  sys- 
tem of  duties  by  which  the  revenue  was  derived  almost 
exclusively  from  imports,  their  proportion  of  the  burdens 
imposed  by  Federal  taxation  would  be  much  greater  than 
it  ought  to  be,  according  to  the  principles  of  the  constitu- 
tion which  regulate  the  apportionment  of  direct  taxes. 
Under  these  circumstances  they  thought  they  had  a  right 
to  insist  that  the  aggregate  burden  of  taxation  should 
bear  as  light  as  possible,  and  that  not  a  dollar  should  be 
expended  by  the  government  that  could  be  avoided  by  a 
rigid  economy.  If  there  were  no  such  products  in  the 
United  States  as  cotton,  tobacco,  and  rice,  would  not  the 
protective  system  be  downright  nonsense, — a  mere  impo- 
tent monument  of  human  folly  ?  How  could  the  people 
of  the  United  States  obtain  foreign  manufactures  when 
they  had  nothing  wherewith  to  pay  for  them  ?  And  what 
could  be  more  absurd  and  stupid  than  to  prohibit  the  im- 
portation of  articles  which  could  not  possibly  be  imported, 
even  if  there  were  no  prohibition  ? 

"It  was  against  domestic,  and  not  foreign,  industry, 
that  the  manufacturers  called  for  protection.  But  why 
did  they  need  this  very  high  and  extravagant  protection  ? 
It  was  because  foreign  manufacturers  purchased  with  the 
productions  of  the  Southern  States,  and  because  these 
were  purchased  by  slave  labor,  which  was  four  times  as 
cheap,  m  the  operations  of  agriculture,  as  the  white  labor 

1  No.  481,  22  Cong.,  first  session. 


420      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1833. 

of  the  Northern  States.  This  was  the  true  and  only  cause 
why  the  manufacturers  required  the  government  to  inter- 
pose its  powerful  arm  to  keep  down  competition.  It  was, 
when  properly  considered,  the  greatest  of  all  absurdities 
to  suppose  that  it  was  against  the  English  manufacturers 
that  this  protection  was  demanded.  This  was  a  mere 
flimsy  disguise  to  cover  the  fraud,  and  conceal  the  out- 
rage, perpetrated  against  the  planters." 

McDuffie  advanced  another  argument,  which  he  had 
originated  two  years  before ;  namely,  that  an  import  duty 
was  not  a  tax  upon  the  consumers  of  commodities  on 
which  it  was  levied,  but  fell  exclusively  on  the  original 
producers  of  the  exports  given  in  exchange  for  the  im- 
ported commodities.  And  inasmuch  as  our  exports  were 
composed  principally  of  cotton,  rice,  and  tobacco,  the  tax 
levied  on  imports  imposed  a  very  unequal  burden  on  the 
planters  of  the  Southern  States.  This  theory  was  sup- 
ported by  the  following  reasoning.  All  commerce  is  an 
exchange  of  equivalents.  The  imports  of  a  nation  are 
precisely  equal  to  its  exports :  the  producer  of  the  exports 
is  therefore  the  producer  of  the  imports ;  and  a  tax  upon 
imports  is  equivalent  to  a  tax  upon  exports,  and  falls 
upon  the  producer  of  them.  In  elaborating  this  argu- 
ment, the  importing  merchant  was  represented  as  the  mere 
agent  of  the  planter,  who  was  thus  made  to  assume  the 
character  of  a  manufacturer  of  Manchester  and  Yorkshire 
woollens,  who  came  in  direct  competition  and  rivalry  with 
the  cotton  and  woollen  manufacturers  of  the  United 
States.  In  this  rivalry  the  Southern  planter  was  obliged 
to  maintain  a  competition  on  very  unequal  terms,  inas- 
much as    his    manufactures    made    in    Manchester   and 


1832.]  TAEIFF   LEGISLATION.  421 

Leeds  were  subjected  to  an  excise  of  forty  per  cent 
in  the  form  of  impost  duty,  while  his  Northern  rivals 
brought  their  goods  into  market  free  from  any  tax  what- 
ever. 

Appleton  of  Massachusetts  answered  this  argument  in 
a  very  few  words :  "  It  is  perfectly  true  that  the  nation 
may  be  said  to  exchange  cotton  for  manufactures ;  but  it 
does  not  follow  that  the  planters  do  so,  for  the  planters 
are  not  the  nation :  and  there  lies  the  fallacy." 

The  bill  was  debated  at  great  length;  and  the  chief 
argument  in  favor  of  reducing  the  tariff  was  its  unequal 
operation  in  the  several  sections  of  the  Union,  the  North- 
ern and  Middle  States  prospering  at  the  expense  of  the 
others.  Bell,  of  Tennessee,  fully  developed  this  idea. 
"It  is  admitted  that  the  uncommon  prosperity  of  the 
tariff  States  has  been  produced  chiefly  by  the  protective 
policy,  and  that  the  continuance  of  their  prosperity  de- 
pends upon  the  maintenance  of  this  policy.  There  are 
nine  States  which  are  supposed  to  be,  in  whole  or  in  part, 
particularly  benefited  by  this  system :  they  are  Mary- 
land, Delaware,  Pennsylvania,  New  York,  Connecticut, 
Rhode  Island,  Massachusetts,  and  Vermont.  Now,  if 
these  States  owe  their  uncommon  prosperity  in  a  great 
degree  to  the  protective  policy,  and  this  is  admitted  by 
the  advocates  of  the  tariff;  and  if  the  fact  be  that  the 
other  States  of  the  Union  do  not  prosper  in  an  equal 
degree,  but,  on  the  contrary,  are  all  comparatively  de- 
pressed, and  that  the  whole  Southern  section  particularly 
is  threatened  with  total  impoverishment;  and  if  this 
inequality  has  been  produced  by  the  policy  of  the  gov- 
ernment,—  ought  not  the  balance  —  the  equilibrium  of 


422      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1832. 

prosperity  at  all  events  —  to  be  restored  if  possible,  and, 
that  as  speedily  as  possible  ?  " 

On  the  other  side,  one  of  the  strongest  arguments 
pressed  was,  that  the  government,  having  encouraged  peo- 
ple to  manufacture  by  establishing  a  system  of  protective 
duties,  could  not  withdraw  this  protection  without  a  vio- 
lation of  public  honor.  Said  Mr.  Evans  of  Maine,  "  The 
people  have  a  right  to  expect  and  to  demand  that  their 
interests,  their  property,  and  their  pursuits  shall  not  be 
the  subject  of  sudden,  frequent,  capricious,  experimental 
change  in  the  measures  of  the  government." 

The  bill  was  passed  the  14th  of  July,  1832 ;  ^  and  the 
duty  on  tea  and  coffee  was  removed  entirely  when  im- 
ported in  American  vessels,  and  the  duty  on  many  things 
was  reduced  from  thirty  to  twenty-five  per  cent  ad  valo- 
rem. 

From  this  legislation  grew  one  of  the  most  exciting 
events  which  had  ever  occurred  in  the  history  of  the 
nation.  South  Carolina  was  so  extremely  displeased,  that 
a  convention,  containing  representatives  of  nearly  all  the 
great  families  of  the  State,  met  at  Columbia  the  19th  of 
November,  and  five  days  afterward  passed  the  celebrated 
nullification  ordinance,  the  first  declaration  of  which  was 
the  following:  "That  the  tariff  law  of  1828,  and  the 
amendment  to  the  same  of  1832,  are  null  and  void,  and 
no  law,  nor  binding  upon  this  State,  its  officers  or  citi- 
zens." The  second  declaration  was  the  logical  sequence 
of  the  first :  "  No  duties  enjoined  by  that  law  or  its  amend- 
ment shall  be  paid,  or  permitted  to  be  paid,  in  the  State  of 
South  Carolina,  after  the  first  day  of  February,  1833." 

1  22  Cong.,  first  session,  chap.  227. 


1833.]  TAKIFP   LEGISLATION.  423 

The  action  of  the  government  with  regard  to  these 
proceedings  is  familiar  history,  and  need  not  be  repeated. 
President  Jackson  was  alive  to  the  situation.  ThouQ'h 
he  adverted  to  the  matter  in  his  annual  message  to  Con- 
gress in  calm  and  temperate  tones,  he  was  preparing  a 
proclamation,  which  appeared  only  a  few  days  afterward, 
in  which  he  very  plainly  told  the  refractory  South  Caro- 
linians what  he  should  do  if  they  made  any  forcible 
resistance  to  the  execution  of  the  laws  of  the  United 
States.  This  proclamation  was  followed  by  asking  Con- 
gress to  confer  additional  powers  adequate  to  the  occa- 
sion. That  body  patriotically  complied  with  his  request. 
A  force  bill,  as  it  was  called,  was  speedily  enacted ;  but 
the  South  Carolinians,  seeing  the  strong  arm  of  the  gov- 
ernment uplifted  to  vindicate  the  laws,  suddenly  changed 
their  purpose,  the  nullification  ordinance  was  repealed  as 
hastily  as  it  had  been  passed,  and  tranquillity  was  re- 
stored. 

At  the  next  session  of  Congress,  President  Jackson 
recommended  a  reduction  of  the  tariff,  in  order  to  ap- 
pease this  froward  State.  He  admitted  that  it  would 
seem  a  violation  of  public  faith,  suddenly  to  abandon  the 
large  interests  which  had  grown  up  under  the  implied 
pledge  of  our  legislation,  and  added  that  "  nothing  could 
justify  it  but  the  public  safety,  which  was  the  supreme 
law."  The  reason  for  the  reduction  was  that  the  tariff 
then  existing  would  produce  too  much  revenue.  Accord- 
ingly, a  new  bill  was  introduced,  prepared  by  the  secretary 
of  the  treasury,  called  "  Verplanck's  bill,"  in  which  the 
duties  proposed  were  nearly  the  same  as  those  contained 
in  the  bills  of  1816  and  1818.     A  persistent   effort  was 


424      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1833. 

made  to  pass  it,  but  without  success.  Then  Mr.  Chiy 
brought  forward  a  bill,  which  was  accepted  by  those  who 
had  been  trying  to  pass  the  former  one,  and  which  was 
adopted  by  a  large  majority.  Nevertheless,  the  warmest 
friends  of  protection,  except  Clay  himself,  opposed  the 
bill.  Nathan  Appleton,  a  trustworthy  critic,  says  that 
Mr.  Clay  acted  under  the  mistaken  idea,  put  forward 
by  the  administration,  that  the  tariff  of  1832  would  pro- 
duce more  revenue  than  was  required  for  the  administra- 
tion of  the  government.^ 

The  leading  provisions  of  this  measure  were  the  follow- 
ing: after  the  year  1833,  the  duties  imposed  on  foreign 
imports  by  the  Act  of  Jul}-  14,  1832,  exceeding  twenty 
per  cent,  were  to  be  reduced  to  the  extent  of  one-tenth 
of  the  excess ;  and  after  the  years  1835,  1837,  and  1839, 
respectively,  a  further  deduction  of  one-tenth  of  the 
excess ;  and  two  years  afterward,  a  further  deduction  of 
one-half  of  the  remainder  of  the  excess  ;  and  after  the 
year  1842,  the  residue  of  the  excess  was  to  be  deducted. 

That  portion,  also,  of  the  Act  of  1832,  which  fixed  the 
rate  of  duty  on  milled  and  fulled  cloth  composed  of  wool, 

1  "What  is  a  Revenue  Stantlard  ?  pp.  17,  18.  But  Clay  himself,  in  giving 
ft  history  of  the  Act,  athrnied  lie  originated  it  unaided  by  suggestion,  and 
unsupported  by  authority.  He  first  thought  of  it  while  at  Philadelphia, 
ou  a  visit  to  his  sister.  He  had  a  meeting  of  certain  manufacturers  at  that 
city,  who  approved  the  plan.  He  saw  Webster,  but  the  latter  did  not 
approve  it;  neither  did  President  Jackson,  nor  did  other  high  and  pow- 
erful i>ersons  whom  Clay  saw.  Calhoun  demanded  a  home  valuation,  btit 
there  were  many  opposed  to  that  feature.  Calhoun  finally  gave  the  meas- 
ure his  support.  The  President's  sanction  was  not  gained  without  dif- 
ticulty.  His  most  influential  friends  urged  him  to  sign  it.  "They  used 
arguments,  and  even  tlireats,  before  they  were  successful."  —  Clay's  Speech 
ill  MilUdyevilk,  Ga.,  March  19,  1S44. 


1833.]  TARIFF  LEGISLATION.  426 

the  value  of  which  did  not  exceed  thirty-five  cents  a 
square  yard,  at  five  per  cent  ad  valorem^  was  repealed. 
Such  cloth  was  thereafter  subjected  to  the  same  duty  as 
other  manufactures  of  wool ;  namely,  fifty  per  cent  ad 
valorem^  diminishing  in  the  manner  just  mentioned. 

The  bill  contained  two  other  very  important  features, 
which  were  taken  from  the  law  passed  the  previous  year. 
These  were,  that  after  the  year  1842  duties  on  imports 
should  be  paid  in  cash,  and  assessed  on  the  value  of  the 
goods  at  the  port  where  they  were  entered. 

The  compromise  consisted  in  giving  manufacturers  ten 
years'  notice  to  prepare  for  the  final  abandonment  of 
the  principle  of  protection.  This  principle,  which  had 
been  in  operation  for  forty  years,  was  to  be  thi'own 
aside  at  the  end  of  half  a  century's  national  existence 
under  the  new  constitution.  "  This,"  says  an  able  free- 
trade  authority  of  those  times,  "  the  manufacturers 
claimed  as  a  right  to  protect  investments  into  which  they 
pretended  to  have  been  tempted  by  the  government."  ^ 
By  the  descending  scale  established  by  this  Act,  the 
average  duties  on  all  imports  ranged  from  fourteen  and  a 
half  to  sixteen  per  cent.  In  1836  the  law  was  somewhat 
amended  by  reducing  the  duty  on  wines ;  and,  in  1841, 
the  duty  on  railroad-iron  was  reduced  to  twenty  per  cent 
ad  valorem.  By  the  same  Act,  a  duty  of  twenty  per  cent 
was  laid  on  imports,  which  at  that  time  were  admitted 
free.  With  the  exception  of  these  slight  changes,  nearly 
a  ten-years'  trial  was  given  to  this  legislation. 

The  departure  was  radical.  Hitherto  the  open  and 
avowed  policy  of  the  government,  so  Robert  J.  Walker 

1  Dern.  Rev.,  vol.  xix.  p.  171. 


426      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1841. 

declared,  had  been  protection  to  home  manufactures. 
Previous  to  the  war  of  1812  the  duties  on  imjDorts  had 
been  low ;  but  the  government  had  been  exceedingly 
friendly  to  domestic  manufacturing,  while  still  greater 
protection  was  afforded  by  the  warring  condition  of  the 
nations  of  the  Old  World.  The  war  of  1812  sadly  blighted 
our  commerce,  but  it  aided  wonderfully  in  developing  our 
manufactures.  Since  then  the  government  had  continued 
to  protect,  raising  ever  higher  and  higher  the  barrier  until 
now,  when  the  policy  was  to  be  reversed,  and,  after  ten 
years,  utterly  abandoned. 

The  adoption  of  the  horizontal  scale  of  reduction,  until 
all  the  duties  should  be  reduced  to  one  dead  level  of 
twenty  per  cent  ad  valorem,  was  an  exceedingly  crude 
piece  of  legislation ;  but  the  law,  it  must  be  remembered, 
was  a  compromise,  "and  the  friends  of  protection  were 
not  to  be  blamed  because  they  could  get  nothing  better." 
They  did  the  best  they  CQuld  to  save  the  interests  they 
cherished  so  dearly.  It  was  not  a  free-trade  measure,  but 
one  which,  at  the  end  of  ten  years,  would  place  the  coun- 
try on  a  free-trade  basis.  It  was  not  a  protective  measure 
in  the  sense  of  working  effectively :  it  was  simply  what  it 
purported  to  be,  —  an  easing-down  of  the  protective  system 
until  free  trade  should  be  reached. 

"  Regarded  either  for  revenue  or  protection,"  said  Robert 
J.  Walker,  in  his  report  in  1845,  "the  measure  was  a  great 
mistake."  A  leading  iron-manufacturer,  when  questioned, 
in  1842,  with  respect  to  the  working  of  the  law,  re- 
marked that  "the  minimum  in  1832  was  arrancred  to 
meet  our  tariff,  and  the  minimum  of  1841,  to  operate 
on  our   manufacturers   like   a   wasting   disease,  so   that. 


1841.] 


TARIFF   LEGISLATION. 


427 


when  the  crisis  arrived,  they  might  die  without  a  faint 

struggle."  ^ 

What  did  the  manufacturers  of  that  time  think  of  the 
law?  Joseph  Jackson,  who  testified  before  an  investi- 
gating committee  in  1842,  said  that  he  had  bought  iron 
for  rolling  at  his  rolling-mills  in  Jersey  City,  from  five  hun- 
dred to  seven  hundred  tons  per  annum,  at  the  following 
prices:  — 


1832 
1833 
1834 
1835 

1836  2 

1837  2 


Per  ton  of  2240  Iba. 
$75.00 

72.00 

70.00  to  $65.00 

67.50 

67.50  to  85.00 

90.00  to  70.00 


1838 
1839 
1840 
1841 
1842 


Per  ton  of  2240  lbs. 
$70.00 

70.00  to  $66.00 
65.00  to  60.00 
60.00  to  50.00 
50.00 


Iron,  which  was  sold  in  1832  for  a  hundred  and  twenty 
dollars  per  ton,  shrank  in  value  to  eighty  dollars  in  1842. 
A  similar  shrinkage  befell  every  kind  of  iron  manufac- 
tures. The  reader  will  have  no  difficulty  in  believing 
that  Mr.  Jackson  told  the  truth  when  he  informed  the 
committee  "  that  so  great  a  decline  must  stop  our  opera- 
tions." The  story  of  the  last  ten  years'  business  was 
truly  a  gloomy  one;  nor  were  there  any  bright  streaks 
in  the  picture.  The  entire  dome  of  the  industrial  sky 
was  darkly  colored. 

Surely  the  manufacturers  of  glass  had  not  fared  well. 
The  production  of  flint-glass  was  begun  in  1817,  but  it 
did  not  flourish  until  1824.  From  that  period  until  1832 
the  duties  were  three  cents  per  pound  and  thirty  per  cent 
ad  valorem,  and  twenty  per  cent  ad  valorem  and  two 
cents  per  pound  on  plain  glass.  The  specific  duty  was 
1  Saltonstall's  Report,  No.  iOL  ^  Year  of  speculation. 


428      FINANCIAL  HISTOEY  OF  THE  UNITED  STATES.       [1841. 

laid  to  counteract  the  effect  of  the  British  bounty  of 
three  cents  a  pound  paid  to  the  exporter.  The  Eng- 
lish manufacturer,  who  was  also  the  exporter,  thus 
favored  by  his  own  government,  increased  his  importa- 
tion; and,  as  the  duties  grew  lighter,  the  prospect  of 
crushing  his  American  competitor  brightened.  In  1841 
the  struggle  had  become  very  unequal ;  for  the  English 
importer  was  not  only  favored  with  the  low  duties,  but 
had  also  learned  the  art  of  invoicing  his  goods  fraud- 
ulently,—  a  fact  that  was  proved  when  seizures  were 
made  in  New  York  in  1839. 

Even  the  cotton-manufacturers  had  been  driven  from 
some  parts  of  their  once  cultivated  field.  Their  British 
competitors,  by  using  a  short-staple  cotton,  and  imitating 
the  American  fabric,  had  succeeded  in  driving  American 
cotton  manufactures  from  South  America.  Indeed,  the 
home  market  was  seriously  threatened  from  the  same 
cause ;  yet  the  American  cotton-manufacturer  could  re- 
view his  experiment  with  considerable  satisfaction.  Im- 
provements in  the  manufacture  of  cotton  had  been  costly ; 
but  the  raw  material  was  here,  and  water-power  was 
abundant.  The  tariffs  of  1816  and  1828  had  given  am- 
ple protection.  What  had  been  the  result?  The  swift 
and  effective  application  of  capital  to  the  manufacture  of 
cotton,  the  calling  into  action  of  a  manufacture  of  human 
labor  previously  dormant  and  inactive,  "  and  all  this  with 
a  constant  reduction  in  the  price  of  the  commodities  pro- 
duced, and  an  extension  of  the  application  of  this  one 
great  staple  to  ncAV  products  and  uses."  And  what  had 
produced  this  pleasing  result  ?  The  manufacturers  them- 
selves declared  that  "  it  was  the  assurance  of  the  home 


1S41.]  TARIFF   LEGISLATTOISr.  429 

market  which  gave  confidence  to  capitalists,"  and  "the 
stimulus  of  a  protective  tariff." 

It  is  true,  for  a  considerable  period  previous  to  1842 
this  great  industry  was  depressed.  Notwithstanding  the 
low  price  of  cotton,  stocks  had  accumulated  "to  a  most 
inconvenient  degree,"  and  heavy  losses  were  impending. 
The  manufacturers  attributed  the  depression  in  a  great 
measure  to  the  deranged  state  of  money,  and  the  glutted 
condition  of  foreign  markets  caused  by  over-production. 
But  the  reduction  in  the  tariff,  and  the  heavy  importa- 
tions which  had  followed,  and  the  uncertainty  which  hung 
over  the  proceedings  of  Congress  in  regard  to  the  tariff, 
added  to  the  gloom  and  apprehensions  of  those  engaged 
in  the  cotton  manufacture.  They  very  plainly  told  the 
congressional  committee  on  manufactures,  who  were  in- 
vestigating the  subject,  that  "  it  would  seem  to  be  no  time 
to  try  new  experiments  with  this  great  interest,  when  the 
whole  or  the  principal  effect  of  so  cutting  down  the  tariff 
as  to  increase  the  imports  of  cotton  manufactures  would 
be  the  substitution  of  goods  made  from  inferior  foreign 
cotton  in  the  place  of  our  own  better  staple.  That  such 
a  policy  should  be  sustained  by  the  representatives  of  the 
cotton-growing  States,  at  the  very  moment  when  Great 
Britain  is  straining  every  nerve  to  supply  herself  with 
this  staple  from  her  own  dominions,  and  with  great  ap- 
parent success,  would  imply  such  a  self-sacrificing  devotion 
to  abstract  theories  as  is,  we  believe,  without  example  in 
the  history  of  the  world." 

The  woollen-manufacturer  had  had  a  doleful  experi- 
ence. The  United  States  was  the  emptying-ground  for 
the  foreign  manufacturer,  who  often  sold  his  goods  at 


430      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1841. 

auction;  and,  at  the  prices  thus  established,  the  home 
manufacturer  was  often  obliged  to  sell  in  order  to  dispose 
of  his  products.  This  was  the  most  serious  obstruction 
lying  in  the  path  of  his  progress.  Auction  prices  were 
too  low  for  him ;  and,  unhappily,  these  prevailed  much  of 
the  time. 

In  1823  wool  was  bought  and  shipped  to  England  as 
a  remittance,  at  sixty-two  and  a  half  cents  per  pound. 
During  the  subsequent  period  it  fluctuated  considerably  ; 
the  price  advancing  to  seventy  cents,  and  falling  to  forty 
cents.  In  1841  it  was  worth  forty-eight  cents.  At  the 
beginning  of  the  same  period  also  (1823),  fifty  cents  a 
yard  was  paid  for  weaving  a  four-dollar  broadcloth :  the 
work  was  done  by  men  by  hand.  In  1841  the  work  was 
done  on  a  power-loom,  attended  by  a  girl,  at  fifteen  cents 
a  yard,  including  the  overseer's  wages.  In  1823  ten  cents 
a  pound  was  paid  for  spinning  yarn  from  the  rolls  for  the 
same  kind  of  goods :  in  1841  less  than  two  cents  a  pound 
was  paid,  in  consequence  of  introducing  improved  ma- 
chinery. In  other  branches  of  the  manufacture  the  ex- 
pense had  been  lessened.  The  price  of  cloth  that  sold  for 
four  dollars  and  a  half  a  yard  in  1823,  had  fallen  one- 
third.  The  introduction  and  expense  of  labor-saving 
machinery  had  fallen  on  the  manufacturer,  who  had 
reaped  but  little  benefit :  the  consumer  had  gained  nearly 
the  whole.  All  the  foreign  improvements,  and  many  more, 
the  products  of  American  genius,  had  been  introduced. 

One  of  the  most  prominent  woollen-manufacturers  of 
that  day  was  certain,  that,  if  the  duties  laid  on  woollens 
had  been  faithfully  collected,  the  industry  would  have  been 
profitable ;  but  frauds  had  been  so  numerous  as  to  deprive 


1841.1  TARIFF   LEGISLATIOX.  431 

them,  "  not  only  of  the  interest  on  their  capital,  but,  in 
most  instances,  of  the  capital  itself."  Half,  if  not  more, 
of  those  engaged  in  woollen  manufactures,  during  the 
nineteen  years  preceding  1842,  had  become  bankrupt. 
Farmers  and  operatives  had  profited ;  but  the  owners  of 
factories,  in  the  aggregate,  had  gained  nothing. 

How  much  worse  the  cotton  and  woollen  manufacturers 
would  have  fared,  during  this  gloomy  period  of  a  waning 
tariff,  had  they  not  connived  with  the  officers  of  the  custom- 
house at  New  York  to  check  importations  by  increasing 
tlie  prices  of  invoices,  and  seizing  goods,  and  subjecting 
importers  to  unexpected  annoyances,  cannot  be  deter- 
mined. That  the  manufacturers,  through  the  agency  of 
others,  sought  to  do  these  things  in  order  to  prevent 
sliding  down  into  ruin,  has  been  clearly  proved.^ 

The  condition  of  another  great  industry  may  be  de- 
scribed before  closing  this  chapter.  From  1816  to  1820 
the  annual  production  of  sugar  increased  from  fifteen 
thousand  to  forty-five  thousand  hogsheads.  At  the  latter 
period  the  capital  invested  in  the  industry  was  #34,000,- 
000.  During  the  next  two  years,  three  hundred  and 
eighty-three  new  estates  were  added  to  the  three  hundred 
and  eight  previously  existing.  The  amount  of  the  invest- 
ment was  thus  increased  to  850,000,000.  Before  these 
new  estates  were  prepared  for  making  sugar,  the  tariff  of 
1834  was  adopted,  and  a  hundred  and  fifty-six  of  them 
were  compelled  to  abandon  the  business.  Six  years  later 
the  entire  industry  was  threatened  with  annihilation.^ 

1  No.  669,  27  Cong.,  second  session. 

2  The  planters  affirmed,  in  a  memorial  addressed  to  Congress,  "  Louisi- 
ana, with  its  uncertain  climate  and  expensive  operations,  cannot  produce 


432      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1841. 


While  the  gradual  reduction  of  the  tax  on  foreign 
sugars  was  undermining  this  once  prosperous  industry, 
the  sugar-planters  themselves  declared,  in  a  memorial 
to  Congress,  that  a  diminution  in  the  current  price  of 
that  commodity,  which  was  the  object  of  the  Compromise 
Act,  could  not  be  attained  if  they  were  compelled  to 
abandon  the  cultivation  of  the  cane.  Nor  was  their 
statement  unsupported  by  fact  or  reasoning.  It  was  an 
axiom  in  commerce,  they  said,  that,  when  a  necessary  of 
life  was  not  commensurate  to  the  demand,  the  cost  of 
producing  such  a  commodity  had  little  to  do  with  its 
price  in  the  market.  The  truth  of  this  axiom  was  fully 
confirmed  by  the  influence  exercised  by  the  production 
of  American  sugar  over  foreign  markets. 

During  the  last  ten  years,  the  prices  in  Havana  in  the 
month  of  April,  for  muscovado  sugar,  had  been  as  fol- 
lows :  — 


Per  arroba. 

Per  arroba. 

1830  .     . 

.     .     3         to  4  cents. 

1835  . 

.  4           to  4.627  cents. 

1831  .     . 

.     .     2.5      to  3 

(( 

1836  . 

.  6.125    to  7 

1832  .     . 

.     .     2.75    to  3 

(( 

1837  . 

.  3.5        to  4 

1833  .     . 

.     .     2.377  to  3 

<( 

1838  . 

.  3.33+  to  4.5 

1834  .     . 

.     .     2.877  to  3 

<( 

1839  . 

.  2.75      to  4 

Thus,  although  the  duties  were  reduced,  the  price  of 
sugar  was  not  greatly  changed.  When  the  Louisiana  crop 
for  1835-36  shrank  to  twenty-five  thousand  hogsheads, 
the  price   in  Havana  was   nearly  doubled,  although  the 

sugar  under  five  cents  and  a  half  ;  while  in  the  West-India  Islands,  with 
their  genial  climate  and  cheap  operations,  muscovados  can  be  produced  so 
as  to  yield  a  fair  remuneration  at  two  cents  and  a  half  to  three  cents.  Under 
these  circumstances  the  enormous  investments  of  capital  in  the  cultivation 
of  sugar,  since  1816,  would  not  have  taken  place,  had  not  a  continuation  of 
the  revenue-tax  then  laid  upon  foreign  sugar  been  implicitly  relied  upon." 


1841.]  TARIFF    LEGISLATION.  433 

Cuban  crop  had  been  quite  as  large  as  usual.  Conse- 
quently, the  memorial  affirmed  that  the  gradual  reduction 
of  the  tax  on  foreign  sugars  was  nothing  more  than  a 
premium  granted  to  foreign  industry,  paid  by  American 
consumers. 

Intimately  related  to  sugar-making  was  the  business 
of  sugar-refining.  For  a  long  period  the  duty  on  raw 
sugar  was  two  cents  and  a  half  a  pound,  which  was  ample 
to  prevent  importation.  This  security  had  been  given  to 
the  refiner  ever  since  the  inception  of  the  business,  and 
was  enough  to  stimulate  him  to  great  undertakings.  A 
large  amount  of  capital  was  invested,  a  high  degree  of 
skill  was  required,  and  every  improvement  suggested  in 
this  country,  or  discovered  abroad,  was  introduced.  Ere 
long  refiners  were  able  to  sell  refined  sugar  at  a  lower 
price  than  the  refiners  of  any  other  nation.  They,  indeed, 
had  been  successful  in  prosecuting  their  business. 


434     FINANCIAL  HISTORY  OF  THE  UNITED  STATES.        [1848. 


CHAPTER    VI. 

TARIFF    LEGISLATION. 
1842-1846. 

There  had  been  a  lull  in  tariff  legislation  for  ten 
years.  The  free-trade  party  had  been  ascendant;  and 
amendment  of  the  law,  save  in  the  slight  ways  mentioned, 
had  been  impossible.  During  the  decade,  a  financial  tor- 
nado had  swept  over  the  country ;  the  United-States  bank 
had  ceased  to  be ;  the  experiment  of  keeping  the  govern- 
ment deposits  with  the  State  banks  had  been  tried,  and 
had  failed  ;  the  government  had  kept  them  several  years 
without  authority,  but  finally  a  bill  had  been  passed 
which  authorized  keeping  them  in  that  manner.  The 
time  had  now  nearly  come  for  reducing  the  duties  to  their 
lowest  point.  Manufactures  were  drying  up  at  the  root.  A 
material  augmentation  of  the  national  revenue  from  some 
source  had  become  necessary,  for  it  had  fallen  below  the 
annual  expenditure.  Whatever  difference  of  oj)inion  ex- 
isted respecting  the  necessity  of  additional  protection  to 
manufacturers,  some  expedient,  it  was  universally  con- 
ceded, must  be  adopted  to  increase  the  public  revenue. 
As  no  one  favored  direct  taxation,  a  revision  of  the  tariff 
was  the  only  mode  of  enriching  the  treasury.^ 

1  The  Democratic  Review  said,  "  We  have  seen  that  protection  from 
the  incident  has  been  distorted  into  the  principle,  and  that  an  advance 


1841.]  TARIFF   LEGISLATION.  435 

Forward,  secretary  of  the  treasury,  in  his  annual  report 
at  the  close  of  1841,  discussed  the  subject,  not  only  with 
reference  to  increasing  the  duties  because  the  government 
needed  a  larger  revenue,  but  also  with  reference  to  various 
important  changes  in  the  mode  of  collecting  duties,  if  the 
law  of  1832  should  be  continued.  "  It  is  fully  acknowl- 
edged," he  said,  "  that  all  the  duties  should  be  laid  with 
primary  reference  to  revenue  ;  and  it  is  admitted,  without 
hesitation  or  reserve,  that  no  more  money  should  be  raised, 
under  any  pretence  whatever,  than  such  an  amount  as  is 
necessary  for  an  economical  administration  of  the  govern- 
ment." But  within  those  limits,  and  incidental  to  the 
raising  of  such  revenue,  he  believed  there  might  be  such 
a  discrimination  in  unposing  duties,  that,  while  no  part  of 
the  country  should  suffer  loss  or  inconvenience,  a  most 

of  duties,  from  five  to  forty  per  cent  average,  has  produced  no  other  result 
than  to  give  strength  to  the  manufacturers  in  seeking  to  enforce  further 
special  legislation  for  their  benefit.  The  evil  has  become  so  great  as  to 
lead  to  the  consideration,  whether  it  should  not  be  counteracted  by  an 
entire  abandonment  of  indirect  taxes,  and  an  abolition  of  the  custom- 
house. By  such  a  course,  a  patronage  of  some  eleven  thousand  offices  will 
be  taken  out  of  the  hands  of  the  Federal  Government,  and  a  source  of  vast 
corruption  dried  up.  The  wants  of  the  Federal  Government  may  be 
^22,000,000  per  annum,  besides  the  land  revenues.  This  could  be  easily 
raised  by  a  tax  apportioned  among  the  States.  As,  for  instance,  the  mill 
tax  of  New  York  yielded  $655,067,  a  two-mill  tax  would  give  at  least 
$1,200,000,  which  would  be  collected,  without  any  increase  of  machinery,  by 
the  comptroller  of  New  York,  with  the  State  taxes,  and  placed  to  the  credit 
of  the  Federal  treasury.  The  collection  would  not  cost  a  dollar;  and  the 
support  of  the  Federal  Government  would  fall  upon  property  instead  of 
upon  labor.  The  economy  and  feasibility  of  such  a  system  is  superior  to 
that  of  customs.  By  the  removal  of  the  latter,  many  evils  would  be  reme- 
died, particularly  that  of  every  few  years  arraying  the  manufacturers  against 
the  government,  and  making  the  distress  of  work-people  the  means  of  war- 
fare."—Vol.  xix.  p.  174:. 


436      FUSrANCIAL  HISTORY  OF  THE  UNITED  STATES.       [184«. 

beneficial  degree  of  protection  could  be  extended  to  the 
labor  and  industry  of  large  masses  of  the  people. 

The  committee  on  manufactures  did  not  report  to  the 
House  until  the  last  of  March,  1842.  Believing,  like  most 
of  the  merchants  and  manufacturers,  that  specific  duties 
afforded  the  best  security  against  frauds,  they  were  gener- 
ally retained.  The  leading  jDrovisions  of  the  bill  reported 
by  the  committee  were  the  following :  — 

1.  A  general  ad  valorem  duty  of  thirty  per  cent,  with 
few  exceptions  where  the  duty  was  on  that  principle. 

2.  A  discrimination  was  made  for  the  security  of  certain 
interests  requiring  it  by  specific  duties,  in  some  instances 
below,  in  others  above,  the  rate  of  the  general  ad  valorem 
duty. 

3.  As  a  general  principle,  the  duty  on  the  articles  sub- 
ject to  discrimination  was  made  at  the  rate  at  which  it  was 
in  1840,  after  the  deduction  of  four-tenths  of  the  excess 
on  twenty  per  cent  by  the  Act  of  1833. 

The  report  accompanying  the  bill  was  exceedingly  elab- 
orate, and  contained  much  valuable  evidence,  from  manu- 
facturers and  others,  concerning  the  working  of  the  law 
of  1832,  the  present  condition  of  the  leading  industries, 
and  what  in  their  opinion  was  needed  to  make  domestic 
manufacturing  more  prosperous.  They  declared  that  much 
more  evidence  would  have  been  presented,  had  Congress 
given  the  requisite  authority  to  collect  it.  A  single  ex- 
tract from  this  document  will  enable  the  reader  to  get  some 
idea  of  its  tone  and  nature. 

"All  the  great  interests  of  the  country  are  now  in  an  ex- 
tremely depressed  condition :  every  branch  of  industry  is  par- 
alyzed.    How  is  it  that  in  a  time  of  profound  peace,  with  a 


1842.]  TARIFF    LEGISLATION.  437 

couutry  abounding  in  natural  resources,  and  blessed  by  Heaven 
beyond  any  other  people  who  ever  existed,  the  voice  of  com- 
plaint should  come  up  from  every  part  of  the  land  ? 

"  There  are  several  causes  for  the  present  depression  of 
property,  and  general  stagnation  of  business,  one  of  which  will 
be  admitted  to  be  the  large  amount  of  our  importations  over 
the  amount  of  exports.  This  depresses  our  home  industry, 
and  drains  from  the  country  annually  large  balances  in  specie, 
crippling  our  banks,  and  depriving  them  of  the  power  to  grant 
the  necessary  facilities.  The  same  causes  produced  the  exhaus- 
tion of  our  resources,  and  the  embarrassment,  which  were  the 
principal  cause  of  the  adoption  of  the  constitution.  From  1783 
to  1789  the  trade  of  the  thirteen  old  States  was  perfectly  free 
to  the  whole  world.  The  result  was,  that  Great  Britain  filled 
every  section  of  our  country  with  her  manufactures  of  wool, 
cotton,  linen,  leather,  iron,  glass,  and  all  other  articles  used 
here  ;  and  in  four  years  she  swept  from  the  country  every  dollar, 
and  every  piece  of  gold." 

As  usual,  there  was  a  minority  report,  quite  as  lengthy, 
which  swept  over  the  whole  field.  Most  of  the  speeches 
that  followed  were  as  profitless  as  the  discourses  of  a  for- 
mer day  concerning  the  grades  of  angels.  The  really 
valuable  light  turned  on  the  subject  was  emitted  by  the 
manufacturers,  who  had  appeared  before  the  committee. 
Long  before,  it  had  become  evident  that  mere  human 
reasoning  was  altogether  inadequate  to  settle  the  question. 
What  was  wanted,  through  all  these  years,  was  an  honest 
and  thorough  inquiry  into  the  condition  of  American 
manufactures,  and  the  workings  of  the  various  laws  which 
had  been  passed  touching  these  interests. 

The  subject  was  discussed  at  great  length  by  the  House, 


438      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1843. 

although  the  time  was  drawing  near  for  making  the  last 
reduction  under  the  compromise  law  of  1832.  Something 
must  be  done.  Accordingly,  Fillmore,  chairman  of  the 
Committee  of  Ways  and  Means,  reported  a  bill  to  extend 
the  existing  tariff  laws  until  the  first  day  of  August,  1842, 
which  was  immediately  passed  by  the  House  ;  but  the 
Senate  amended  the  bill  by  adding  a  proviso  that  noth- 
ing therein  contained  should  suspend  the  operation  of  the 
distribution  law,  —  a  law  passed  at  the  extra  session  of 
the  preceding  year,  distributing  the  proceeds  of  the  sales 
of  the  public  lands  among  the  States.  The  first  half- 
yearly  distribution  was  to  take  place  the  1st  of  July.  Be- 
sides, there  was  another  reason  for  passing  this  temporary 
law.  Under  the  compromise  Act,  after  the  30th  of  June, 
there  was  to  be  a  home  valuation  and  cash  duties.  No 
law  had  yet  been  enacted  to  regulate  their  collection,  and 
it  was  questioned  whether  there  was  any  authority  to  col- 
lect them. 

In  the  debate  on  this  bill  the  proviso  became  a  promi- 
nent topic  of  discussion.  The  distribution  Act  contained 
a  proviso,  that,  if  at  any  time  the  duties  under  the  com- 
promise tariff  should  be  raised,  the  distribution  should 
cease,  and  be  suspended  until  the  cause  of  the  suspension 
were  removed.  This  proviso  to  the  distribution  Act  was, 
at  the  time  of  passing  the  bill,  highly  objectionable  to 
many  of  the  friends  of  distribution ;  but  its  adoption  was 
found  necessary  to  insure  its  passage,  the  advocates  of  a 
low  tariff  apprehending  that  the  diversion  of  money  accru- 
ing from  land-sales  would  necessitate  an  increase  of  duties. 
Those  who  were  in  favor  of  high  protective  duties  desired 
the  removal  of  the  proviso  of  the  distribution  Act  in  order 


1843.]  TAIIIFF   LEGISLATION. 


439 


that  the  tariff  might  be  raised  without  interfering  with 
distribution.  The  House  having  rejected  an  amendment 
proposing  to  strike  out  the  proviso  which  prohibited  the 
suspension  of  the  distribution  law,  the  bill  was  passed 
by  the  House,  and  afterward  by  the  Senate,  but  vetoed  by 
the  President. 

Another  tariff  bill  was  introduced  by  Mr.  Fillmore, 
drawn  by  the  secretary  of  the  treasury,  —  to  which,  how- 
ever, the  committee  added  a  proviso  that  the  distribution 
of  the  proceeds  of  the  public  lands  should  be  distributed, 
notwithstanding  the  increase  of  duties,  —  which  passed 
both  Houses  after  a  short  debate.  This  contained  a  re- 
vision of  a  considerable  number  of  duties,  and  was  also 
vetoed  by  the  President. 

Impelled  by  the  necessity  of  providing  additional  reve- 
nue, a  bill  was  rapidly  pushed  through  Congress,  similar 
to  that  previously  passed,  with  the  omission  of  the  pro- 
viso requiring  distribution,  and  further  modified  by  admit- 
ting free  of  duty  tea  and  coffee  growing  east  of  the  Cape 
of  Good  Hope,  imported  in  American  vessels.  This  bill 
was  approved  by  the  President.^ 

A  separate  bill  was  then  passed,  repealing  the  proviso 
of  the  distribution  Act,  and  allowing  the  distribution  to 
take  place,  notwithstanding  the  increase  of  duties;  but 
the  bill  was  retained  by  the  President,  and  defeated. 

Thus  ended  a  long  and  bitter  controversy,  in  which 
public  sentiment  expanded,  and  hardened  against  the 
chief  Executive  of  the  nation.  Adams  made  a  lengthy 
report  against  what  he  regarded  a  usurpation  of  power  by 
the  President,  and  recommended  such  an  alteration  of 
1  Aug.  30,  1842,  27  Cong.,  second  session,  chap.  270. 


440      Kl  N  A  N(;i  A  I.  HISTORY  OF  THE  UNITED  STATES.       [1842. 

tho  ('onslitiitioii  ;i,s  would  ciia})Jo  (yongress  to  enact  laws 
by  a  Kiinj)l(!  iiiiijority  vote,  instead  of  a  two-thirds  vote, 
wli('M(;v(!r  hills  vv(!r(!  sejit  to  the  President  for  his  approval, 
and  did  not  receive  it. 

'rii;ii  larifT  remained  without  change  during  the  next 
foil  I-  years.  In  ('X[)ectation  of  higher  duties,  importa- 
(ioiis  were  (Miormously  increased,  importers  believing  that 
])ri(H!S  would  i^(lva,ll(•(^  and  that  their  profits  would  be 
larger.  They  ovcr-stoi^kcd  the  market,  and  at  a  time,  too, 
when  the  people  were  feeling  poor,  not  liaving  fully  re- 
(U)veved  IVoni  their  terrible  reverses.  So  prices  fell.  Not 
even  hy  danuuing  np  the  channel  of  imports  with  higher 
duties  eonld  the  downward  movement  be  prevented.  Of 
eonrs(>,  (his  eondilion  of  the  market  caused  a  great  de- 
cline in  ini|>(»rtations.*  During  the  first  nine  months  of 
(lu>  n(>w  tarilf,  imports  amounted  only  to  $64,753,799, 
of  which  about  f "24, 000,000  were,  dutiable  goods,  paying 
ni'arly  thirty-six  pt>r  i-ent  average  duty.  For  the  next 
two  years  the  imports  were  <f225,(389,699,  and  the  duties 
if'tJO,  188,774,  or  twenty-sovou  per  cent,  which  was  a  re- 
turn to  the  war-tax  oi'  1812.-  When  the  secretary  of 
the  treasury  made  his  tirst  report,  after  the  law  went 
into  eiVect,  lu>  declared  the  time  had  boon  too  short  to 
rnrnish  any  tlocisivo  ovidonoo  rospooting  its  permanent 
intluence  on  importations.  Foreign  trade  continued  to 
deelino,  ami  importations  wore  slight.  How  far  this 
state  of  things  was  caused  by  the  existing  system  of 
duties,  it  was  impossible  to  determine.    He  declared,  how- 

1  Soo  Koivrt  of  Com.  of  Ways  tuul  Me;ms,  No.  227.  27  Coug.,  third  ses- 
8ivn\. 

"  IVm.  Rev.,  vol.  xix.  p.  172. 


1843.] 


4-41 
TARIFF   LEGISLATION.  ^^^ 

ever,  that  the  smallness  of  the  importations  might  well  be 
accounted  for  by  the  embarrassed  condition  of  the  coun- 
try, and  the  extremely  limited  means  of  purchase.  Prices 
of  foreign  goods  had  heavily  declined  during  the  year:  it 
could  hardly  be  affirmed,  therefore,  that  the  diminished 
importation  was  caused  by  the  system  of  duties  which  had 

gone  into  effect. 

Those  opposed  to  the  tariff-law  declared  that  the  de- 
cline   in   importations  was  chiefly  due  to  the  very  high 
duties  which  had  been  imposed.^     As  more  revenue  was 
needed,  they  accordingly  advocated  a  reduction  of  duties. 
On  the  other  hand,  it  was  said  that  the  decline  in  impor- 
tations was   mainly  owing   to   other   causes,  and  that  a 
reduction  of  the  duties  would  not  increase  the  revenues, 
-perhaps  they  would  shrink  still  more.     When  the  ob- 
ject of  taxing  imports  is  purely  to  get  a  revenue,  and  the 
largest  possible  amount,  what  tax  shall  be  levied  can  be 
exactly  determined  only  by  experiment.     If  there  be  a 
uniform  duty  of  forty  per  cent,  for  example,  a  reduction 
to  thirty  per  cent  may  have  the  effect  of  increasing  the 
imports  more  than  twenty-five  per  cent,  in  which  case  the 
revenue  is  increased;   but,  if  imports  are  not  increased 
twenty-five  per  cent,  there  is  a  loss  of  revenue  by  redu- 

1  The  Committee  of  Ways  and  Means  affirm  in  a  report  on  this  subject 
March  11  1844,  "The  fact  of  the  great  falling-off  in  the  importations  of 
Tany  important  articles,  as  well  as  in  the  aggregate  of  dutiable  import, 
"ons  under  the  present  law,  will  be  apparent;  and,  whatever  other  mflu- 
encel  may  have  affected  the  trade  of  the  country  during  the  various  years 
nilbedifficulttobelievethatthehighdutiesunderthepresentlawha. 

not  had  a  powerful  effect,  if  not  the  chief  agency,  in  producing  the  result. 
McKly  was  chairman  of  the  committee,  who  was  strongly  in  favor  of 


free  trade. 


442      FINAJSrCIAL  HISTORY  OF  THE  UNITED  STATES.       [1844. 

cing  the  duty.  It  is  certain,  if  high  duties  had  not  been 
the  chief  cause  in  reducing  imports,  Jthe  protectionists 
could  not  fairly  claim,  as  they  did,  that  the  tariff  had 
been  the  effective  agent  in  protecting  their  interests. 
They  could  not  prove  both  claims,  —  that  the  law  was 
protective,  and  yet  not  effective  in  checking  importations. 
If  protection  had  been  afforded  by  it,  importations  had 
been  diminished :  on  the  other  hand,  if  the  law  had  not 
checked  importations,  how  could  it  have  furnished  any 
protection  ? 

The  next  year  four  million  dollars  more  were  wanted 
than  the  estimated  income,  and  four  and  a  half  million 
dollars  the  year  following.  How  should  this  estimated 
deficiency  be  raised?  John  C.  Spencer,  who  was  now 
secretary  of  the  treasury  (the  third  during  Tyler's  admin- 
istration), discussed  the  subject  at  considerable  length. 
A  reduction  of  expenditures  was  one  way.  Then  he  » 
turned  to  the  question  of  taxation.  Direct  taxation  was 
impracticable :  no  permanent  increase  could  come  from 
any  modification  of  the  land  system.  Some  temporary 
accession  might  be  obtained  by  reducing  the  price  of  land 
offered  for  sale ;  but  such  a  change  would  hazard,  if  not 
destroy,  a  rich  fountain,  whose  regular  and  steady  stream 
was  kept  up  by  maintaining  the  policy  then  pursued  by 
the  government.  Our  ultimate  resources,  therefore,  he 
declared,  must  be  duties  on  imports.  But  he  was  unable 
to  discover  how  any  existing  duties  could  be  increased 
with  a  reasonable  prospect  of  augmenting  the  revenue. 
The  danger  was,  that,  if  imports  were  subjected  to  a 
higher  duty,  they  would  be  either  clandestinely  intro- 
duced, or  not   imported   at  all.     Looking  at  the  subject 


1844.]  TARIFF   LEGISLATION.  443 

exclusively  with  reference  to  revenue,  he  was  not  pre- 
pared to  specify  any  very  important  rates  of  duty  that 
would  bear  reduction.  He  added,  however,  that  those 
levied  on  glass,  particular  kinds  of  iron,  coal,  and  sugar, 
were  considered  by  many  too  high  for  revenue  purposes. 
The  last  way  of  raising  the  revenue  needed,  that  he 
could  discover,  was  to  tax  tea  and  coffee.  The  opinions 
of  importers  of  these  commodities,  of  merchants,  and  of 
officers  of  customs  in  various  parts  of  the  United  States, 
were  "  unanimously  and  decidedly  in  favor  of  such  duties," 
as  "more  equal  and  less  burdensome  than  any  other 
mode  by  which  the  same  amount  could  be  collected." 

Congress,  though,  did  not  see  fit  to  heed  the  recommen- 
dation ;  but  the  next  year,  when  the  annual  report  of  the 
secretary  of  the  treasury  was  presented,  a  more  favorable 
account  was  given  of  the  national  income.  Bibb  affirmed 
that  the  system  of  revenue  established  by  the  law  of  1842, 
for  imposing  duties  on  imports,  would  yield  a  much 
greater  amount  of  annual  revenue  than  was  necessary 
for  the  support  of  the  government,  the  public  credit,  and 
the  wants  of  the  treasury. 

So  long  as  Congress  kept  within  the  confines  of  raising 
revenue  necessary  for  the  support  of  the  government,  to 
maintain  the  public  credit,  and  to  provide  for  the  common 
defence  and  general  welfare,  the  incidental  encourage- 
ment and  protection  of  domestic  manufactures,  arising  out 
of  the  mode  of  laying  such  necessary  revenue  by  duties 
on  imports,  he  contended,  was  rightful,  —  "  an  inevitable 
attendant  upon  the  exercise  of  delegated  power. 

"  The  value  of  goods,"  he  further  remarked,  "  and  mer- 
chandise imported  free  of  duty,  bears  a  great  proportion 


444      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1844. 

to  the  value  of  those  imported  paying  duty.  By  such 
exemptions  from  duty,  the  inequality  of  the  burden  of 
taxation  between  the  respective  classes  of  consumers  is 
increased.  By  enlarging  the  circle  of  articles  charged 
with  duty,  and  diminishing  the  circle  of  articles  exempted 
from  duty,  the  proportions  of  contribution  to  the  public 
treasury  can  be  made  to  bear  more  fairly  and  equitably 
upon  those  who  pay  these  indirect  taxes.  By  lowering 
the  rate  of  duties,  and  abridging  the  list  of  articles  ad- 
mitted free  of  duty,  the  comforts  and  consumption  of  the 
people  will  be  enlarged,  the  temptation  to  smuggling  will 
be  decreased,  and  the  necessary  sum  of  revenue  will  be 
more  certainly  raised."  Bibb,  therefore,  recommended 
lessening  the  rates  of  duties,  and  that  all  articles  im- 
ported be  subjected  to  duty,  excepting  such  as  should  be 
imported  for  the  use  of  the  United  States,  and  in  certain 
other  cases.^ 

Congress  did  not  heed  his  recommendations.  The 
tariff  remained  unchanged  until  1846.  From  1832  to 
1840  the  subject  slept,  because  the  majority  of  Congress 
were  opposed  to  any  change  j  but  with  the  election  of 
Harrison,  in  1840,  the  tide  in  the  House  turned.  The 
protectionists  formed  a  majority,  and  a  fresh  agitation  was 
begun.  Had  Harrison  lived,  the  bill  of  1842  would  have 
been  different  from  what  it  was.  Had  not  the  government 
required  a  larger  revenue  from  some  source,  doubtless 
Tyler  would  not  have  approved  any  bill  increasing  the 
tax  on  imports.     The  needs  of  the  government  were  so 

»  Annual  Treas.  Report,  December,  1844.    There  was  one  defect  in  the 
law,  needing  amendment :  it  discriminated  against  the  wines  of  Portugal, ' 
contrary  to  treaty.  —  Report  No.  124,  28  Cong.,  first  session. 


1844.]  TARIFF   LEGISLATION.  445 

great  that  he  could  not  do  otherwise.  Each  secretary 
of  the  treasury  discussed  the  subject,  and  no  one  regarded 
the  law  as  a  permanent  piece  of  legislation.  At  nearly 
every  session  of  Congress  the  subject  was  agitated.  Such 
constant  attempts  to  change  the  tariff  were  by  no  means 
favorable  to  the  development  of  our  manufacturing  inter- 
ests. "  No  complaint,"  said  McKay  in  1844,i  "  has  been 
more  universal,  nor,  as  the  committee  believe,  better 
founded  in  fact,  than  that. which  comes  from  the  manu- 
facturers, the  merchants,  and  all  other  classes  of  business- 
men interested  in  the  matter,  and  relates  to  the  frequent 
and  extreme  changes  and  fluctuations  so  constantly  ex- 
perienced in  the  legislation  of  Congress  upon  the  subject 
of  the  tariff." 

Importations  on  foreign  account  constantly  increased. 
Of  the  total  amount  imported  from  England  in  1840,  and 
entered  at  the  custom-house  in  New  York,  sixty-five  per 
cent  was  on  English  account,  and  thirty-five  per  cent 
on  American.  From  all  other  countries,  China  excepted, 
the  proportion  in  favor  of  foreign  importation  on  foreign 
account  was  the  same  as  that  from  France ;  viz.,  eighty- 
three  per  cent.2  Thus,  like  the  people  of  Babylon,  we 
had  suffered  the  foreigner  to  control  the  import-trade 
of  the  country. 

During  the  period  under  review,  notwithstanding  the 
increased  tariff,  prices  were  largely  reduced.  The  reduc- 
tion was  not  due  wholly  to  the  tariff,  but  it  was  a  co- 
operating cause.      The   severe  times  through  which  the 

1  March  11,  No.  306,  28  Cong.,  first  session. 

2  IngersoU's  Minority  Report,  April  4,  18i4,  No.  306,  28  Cong.,  first  ses- 
sion. 


446      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1846. 

country  had  passed,  the  suffering  endured,  and  the  loss  of 
wealth  sustained,  —  these  causes  also  contributed  in  re- 
ducing prices. 

It  may  be  remarked  that  higher  duties^  had  been 
adopted  for  the  purpose  of  raising  a  revenue,  and  of 
throwing  greater  protection  over  American  manufactures. 
Did  the  law  fulfil  the  expectation  of  its  originators  ?  Else- 
where we  have  shown,  that,  after  it  had  been  executed  for 
a  considerable  period,  the  revenues  were  insufficient  to 
pay  all  the  expenses  of  the  government.  Importa- 
tions were  very  much  checked  through  the  inability  of 
the  people  to  purchase.  But  in  1843  imports  swelled, 
the  revenues  became  ample,  and  there  was  no  need  of  in- 
creasing them.  The  law,  therefore,  fulfilled  the  expecta- 
tion of  its  authors  in  this  regard. 

But  it  may  be  asked.  Was  not  that  a  marvellous  law, 
and  the  perfection  of  legislation,  which  increased  the 
revenue,  and  revived  the  withering  manufacturing  inter- 
ests of  the  land?  How  could  increased  revenue  and 
more  protection  be  obtained  from  the  operation  of  the 
same  law?  Let  not  the  reader  puzzle  himself  with  the 
question :  let  him  fix  his  eye  steadily  on  the  facts,  and  he 
shall  learn  the  answer.  More  protection  was  obtained  by 
checking  importations:  this  fact  no  one  will  dispute. 
Another  fact  is  equally  clear :  although  importations 
were  diminished,  the  revenues  were  not,  because,  in  con- 
sequence of  the  higher  duties  imposed,  a  larger  revenue 

1  The  appendix  to  Hudson's  Report,  No.  420,  28  Cong.,  first  session, 
contains  a  large  number  of  very  valuable  tables,  showing  the  decline  in 
prices  after  the  increase  of  duties  in  1841.  The  report  itself  is  in  Niles,  but 
not  the  appendix,  which  is  the  most  valuable  portion. 


1844.]  TARIFF   LEGISLATION.  447 

was  collected  from  the  importations  than  had  been  col- 
lected previously  from  larger  importations  paying  lighter 
duties.  A  third  fact  may  be  noted :  the  revenues,  so 
long  as  the  law  existed,  were  ample,  after  its  full  effect 
appeared. 

The  effect  of  this  tariff-law  was  highly  satisfactory  to 
the  believers  in  governmental  protection.  One  of  the 
leading  cotton-manufacturers  of  the  day,  after  reviewing 
its  effect  on  all  the  leading  articles  of  consumption, 
remarked,  "Its  adoption  was  one  of  those  events  which 
stamp  a  decided  character  on  the  period  in  which  they 
occur.  It  may  be  said  to  be  the  first  pivot  on  which 
turned  the  fate  of  the  country.  The  currency  had  been 
long  deranged ;  with  a  deficient  revenue,  the  credit  of  the 
general  government  had  been  reduced  to  the  lowest  ebb  ; 
trade  was  prostrate,  industry  paral3^zed ;  the  public  mind 
was  filled  with  apprehension  and  dismay  at  the  portentous 
indications  of  the  future,  —  when  this  measure,  adopted 
with  the  greatest  difficulty,  carried  almost  by  miracle, 
changed,  as  if  by  enchantment,  the  whole  scene.  In  the 
short  space  of  a  year,  the  whole  country  passed  from  the 
depth  of  suffering,  idleness,  and  depression,  to  a  state  of 
the  most  active  prosperity  and  the  fullest  confidence.  No 
one  capable  of  tracing  cause  and  effect  can  doubt  that 
the  change  was  the  direct  and  immediate  result  of  the 
tariff."  1 

Alas  for  the  manufacturers !  Their  prosperity  was 
short-lived.  Their  summer  —  like  that  of  the  dwellers  in 
the  Red-river  settlement  of  the  North,  where  the  sun- 
shine, brief,  but  brilliant,  clothes  the  valley  with  an  almost 

1  Nathan  Appleton,  What  is  a  Revenue  Standard  ?  etc.,  p.  11. 


448      FINAJ^CIAL  HISTORY  OF  THE  UNITED  STATES.      [1846. 

tropical  luxuriance,  and  rich  crops  ripen,  and  fruits  and 
flowers  of  the  South  mature  in  a  brief  period  —  was  to 
pass  swiftly,  and  be  succeeded  by  a  long,  dreary,  and  un- 
welcome winter. 


1846.]  TAKLFF   LEGISLATION.  449 


CHAPTER  VII. 

TARIFF  LEGISLATION. 
1846-1860. 

In  1846  the  tariff  was  radically  changed.  Polk  was 
President.  When  in  Congress,  he  had  generally  favored 
low  duties;  but,  as  the  electoral  vote  of  Pennsylvania 
must  be  won  to  insure  his  election  to  the  presidency,  he 
wrote  a  letter,  during  the  canvass,  in  which  he  tried  to 
make  the  people  of  that  State  believe  he  was  in  favor  of 
a  tariff  that  would  afford  sufficient  protection  to  their 
various  manufacturing  interests.  Having  been  elected,  he 
placed  at  the  head  of  the  treasury  department  Robert  J. 
Walker,  whose  first  report  was  such  an  \mequivocal  and 
elaborate  argument  for  free  trade,  that  it  secured  the  rare 
praise  of  republication  by  the  British  Parliament.  JSTot 
only  did  the  manufacturers  of  Great  Britain  desire  Polk's 
election,  but  they  contributed  money  to  that  end,  and  per- 
haps a  fitting  recognition  of  their  gift  required  the  appoint- 
ment of  a  secretary  of  the  treasury  like  Mr.  Walker, 
whatever  might  be  the  result  of  establishing  the  free  trade 
system  to  the  wealth  and  happiness  of  American  manu- 
facturers.^    Anyhow,  the  President  could  not  have  chosen 

1  Mr.  Duncan,  from  Louisiana,  who  addressed  a  meeting  at  Lowell 
during  the  campaign,  said  "that  he  was  in  Manchester,  England,  about 
six  weeks  ago,  and  while  there  he  attended  a  meeting  of  British  mer- 


450      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1846. 

a  finance  secretary  more  acceptable  to  the  English  man- 
ufacturers, who,  whether  free  trade  be  advantageous  to 
the  American  people  or  not,  have  never  doubted  that 
their  own  interests  were  promoted  by  making  trade  as 
free  as  possible  among  all  nations. 

In  this  celebrated  document,  Walker  announced  the 
following  propositions,  which  formed  the  basis  of  all  his 
reasonings  on  the  subject :  — 

1.  That  no  more  money  ought  to  be  collected  than  was 
necessary  for  the  wants  of  the  government,  economically 
administered ; 

2.  That  no  duty  should  be  imposed  on  any  article  above 
the  lowest  rate  which  would  yield  the  largest  amount  of 
j'evenue ; 

3.  That  below  such  rate  discrimination  might  be  made, 
descending  in  the  scale  of  duties,  or,  for  imperative 
reasons,  the  article  might  be  placed  in  the  list  of  those 
free  from  all  duty  ; 

4.  That  the  maximum  revenue  duty  should  be  imposed 
on  luxuries ; 

5.  That  all  minimums,  and  all  specific  duties,  should  be 
abolished,  and  ad  valorem  duties  substituted  in  their  place, 
care  being  taken  to  guard  against  fraudulent  invoices  and 
undervaluation,  and  to  assess  the  duty  upon  the  actual 
market  value ; 

6.  That  the  duty  should  be  so  imposed  as  to  operate  as 

chants  and  manufacturers,  called  for  the  purpose  of  disseminating  free 
trade  principles  throughout  the  world  ostensibly,  but  throughout  the 
United  States  in  particular.  A  committee  reported  to  the  meeting  that 
they  had  succeeded  in  raising  one  hundred  thousand  dollars  for  this  pur- 
pose." "Now,"  said  Mr.  Duncan,  "I  heard  and  saw  this  ;  and  it  was 
stated  in  that  meeting  that  a  large  portion  of  the  publications  should  be 
sent  to  the  United  States."     See  67  Niles,  pp. '39,  77. 


184G.] 


TARIFF   LEGISLATION,  451 


equally  as  possible  throughout  the  Union,  discriminating 
neither  for  nor  against  any  class  or  section. 

Some  articles,  he  remarked,  would  yield  the  largest 
revenue,  when  paying  duties  that  would  be  wholly  or 
partly  prohibitory  in  other  cases.  The  liighest  revenue 
duties  could  be  collected  from  luxuries ;  but  even  some 
very  costly  ones,  easily  smuggled,  would  bear  but  a  light 
duty  for  revenue,  while  other  articles  of  great  bulk  and 
weight  would  bear  a  higher  one.  No  nation  had  ever 
enacted  a  horizontal  tariff;  but  wliile  it  was  impossible 
to  do  this,  or  even  to  adopt  any  arbitrary  maximum, 
experience  proved  that  generally  a  duty  of  twenty  per 
cent  ad  valorem  yielded  the  largest  revenue.  On  many 
things  a  lower  rate  would  be  the  most  productive. 

The  constitutional  power  of  Congress  "  to  lay  and  col- 
lect taxes,  duties,  imposts,  and  excises,"  did  not  authorize 
the  laying  of  a  prohibitory  duty,  or  a  duty  in  which  reve- 
nue was  sacrificed  to  the  object  of  protecting  the  manu- 
facture of  the  commodity  that  was  taxed. 

Taxation,  he  further  remarked,  whether  direct  or  in- 
direct, should  be  nearly  as  possible  in  proportion  to  prop- 
erty. If  the  whole  revenue  were  raised  by  a  tax  upon 
property,  the  poor  would  pay  a  very  small  portion  of  such 
a  tax;  whereas,  by  the  consumption  of  imports,  or  of 
domestic  commodities  enhanced  in  price  under  the  tariff, 
the  poor  were  made  to  pay  a  much  larger  share  of  the 
taxes  than  if  they  were  collected  by  an  assessment  in 
proportion  to  property.  To  counteract,  so  far  as  possible, 
this  effect  of  the  tariff,  and  make  it  approximate  to  a  sys- 
tem of  taxes  in  proportion  to  property,  the  duties  upon 
luxuries  should  l)e  fixed  at  the  highest  revenue  standard. 


452      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1846. 

This  would  not  be  discriminating  in  favor  of  the  poor, 
but  would  mitigate  that  discrimination. 

A  bill  was  introduced  into  the  House,  embodying  the 
views  of  the  secretary,  which  passed  without  lengthy 
debate.  In  the  Senate,  the  question  of  adopting  the 
ad  valorem  system,  in  preference  to  specific  duties,  was 
debated  at  great  length,  and  with  much  ability.  Several 
amendments  were  offered ;  but  the  bill  finally  passed  with 
no  notable  alteration,  save  one  relating  to  the  collection  of 
duties.  The  friends  and  opponents  of  the  measure  were 
so  evenly  divided,  that  the  Vice-President,  Dallas,  was 
obliged  to  vote  in  order  to  secure  its  passage.^  Coming 
from  Pennsylvania,  we  may  well  imagine  that  the  duty 
was  not  pleasant  to  perform. 

The  law  was  very  unpalatable  to  American  manufactur- 
ers. A  tariff  born  under  such  conditions,  and  sponsored 
by  the  English  nation,  the  believers  in  protection  might 
well  shrink  from  accepting,  with  not  less  reason  than 
Laocoon  did  the  wooden  horse  filled  with  armed  men. 

In  enacting  this  law,  the  ideas  lying  at  the  bottom  of 
the  tariff  of  1832  rose  to  the  surface,  except  that  the 
absurd  doctrine  of  a  horizontal  reduction  was  replaced 
with  a  better  mode  for  reducing  duties.  The  ad  valorem 
system  was  now  extended  to  the  outermost  edge :  hence- 
forth Congress  could  go  no  farther,  save  to  reduce  or 
abolish  the  rates.  Setting  aside  the  increased  danger  of 
fraud,  it  was  objected  that  an  ad  valorem  duty  was  alto- 
gether too  fluctuating  and  uncertain ;  that  at  one  time 
it  might  be  too  high,  at  another  too  low,  the  ever-varying 
changes  in  the  price  of  goods  producing  this  effect.     The 

1  The  bill  was  passed  July  30. 


1846.] 


TARIFF    LEGISLATION.  453 


slidino-  scale  of  the  English  corn-laws  was  intended  to 
make  the  price  uniform  by  imposing  a  high  duty  when 
corn  was  cheap,  and  gradually  diminishing  the  duty 
almost  to  nothing  as  the  price  rose.  This  was  harshly 
censured  by  the  advocates  of  free  trade  in  England  for  its 
uncertainty,  who  contended  that  all  variations  in  duties 
were  pernicious.  But  an  ad  valorem  duty  was  the  same 
sliding  scale  reversed.  When  the  commodity  imported 
was  dear,  the  duty  rose,  and  the  payment  of  it  constituted 
a  heavy  burden  ;  but  when  the  commodity  became  cheap, 
and  a  high  duty  would  hardly  be  felt  by  the  consumer, 
the  duty  fell.  Thus  fluctuation  in  prices,  which  can  never 
be  wholly  avoided,  but  which  usually  brings  evil,  was  in- 
creased by  the  adoption  of  the  ad  valorem  principle. 

How  did  this  sliding  scale  affect  the  manufacturer  ? 
When  prices  abroad  were  high,  and  protection  was  less 
needed,  the  effect  was  to  increase  his  profits ;  but  when 
prices  fell,  and  protection  was  needful,  the  duty  fell  too, 
and  his  struggle  against  competitors  was  intensified. 
When  the  price  of  bar  iron  was  ten  pounds  sterling  in 
England,  the  duty  of  thirty  per  cent  might  be  adequate 
protection;  but,  when  the  price  was  only  four  or  five 
pounds  per  ton,  the  duty  fell  in  proportion,  and  the  Amer- 
ican manufacturer  must  suffer.  Calhoun  saw  this  defect 
so  clearly,  that  he  favored  the  adoption  of  a  sliding  scale 
of  an  opposite  kind,  in  levying  duties  on  railroad  iron, 
like  that  embodied  in  the  English  corn-law.  His  view, 
though,  was  not  entertained  by  many.  Walker  was 
master  of  the  situation,  and  the  manufacturer  could  do 
nothing.^ 

1  Protection  and  Free  Trade,  etc.,  Salem,  1846,  pp.  23,  24 


454      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1848. 

The  war  with  Mexico,  the  discovery  and  yield  of 
gold  in  California,  and  the  famine  in  Ireland,  which 
created  an  extraordinary  demand  for  our  breadstuff's, 
delayed  the  dreaded  ills  which  were  expected  to  ap- 
pear from  the  withdrawal  of  protection.  Nevertheless, 
they  appeared  too  soon,  and  were  too  potent  to  be 
resisted. 

In  1851  the  "  American  Review "  said  that  the  im- 
mense importations  of  foreign  merchandise  into  the 
country,  in  consequence  of  the  encouragement  held  out 
by  the  present  tariff,  were  beginning  to  be  severely  felt 
by  the  commercial  and  trading  interests,  and  would  surely 
result  in  the  most  ruinous  consequences  to  the  coun- 
try at  large.  The  low  prices  to  which  the  staple 
articles  of  agriculture  had  fallen  must  convince  farmers 
and  planters  that  increased  importations  were  not  coun- 
terbalanced by  exportation  s  of  produce,  notwithstanding 
the  predictions  of  the  late  secretary  of  the  treasury, 
Mr.  Walker.i 

The  growth  of  fraud  under  the  law  was  rapid  and  de- 
moralizing. Gallatin,  in  1801,  had  urged  an  extension  of 
specific  duties  in  order  to  prevent  undervaluation.  In 
his  annual  report  for  that  year,  he  said,  "  Without  any 
view  to  an  increase  of  revenue,  but  in  order  to  guard  as 
far  as  possible  against  the  value  of  goods  behig  under- 
rated in  the  invoices,  it  would  be  eligible  to  lay  specific 
duties  on  all  such  articles,  now  paying  duties  ad  valorem^ 
as  may  be  susceptible  of  that  alteration."  The  nu- 
merous frauds  occasioned  by  the  adoption  of  the  ad 
valorem  system    were    clearly   set   forth   by   the   various 

1  Vol.  xiv.  p.  270. 


1849.]  TARIFF    LEGISLATIOX.  455 

collectors  in  their  reports  to  tlie  secretary  of  the  treasury 
in  1849.1 

The  Democratic  party  at  this  period  were  very  hostile 
to  the  tariff.  The  Democratic  convention  of  Hamilton 
County,  Ohio,  addressed  the  following  letter  to  the  secre- 
tary of  the  treasury,  which  was  a  fair  and  candid  expres- 
sion, generally,  of  those  who  belonged  to  that  party : 
"Manufacturers  are  not  of  themselves  objects  of  desire 
to  a  free  people,  or  of  favor  for  a  free  government.  They 
involve  the  necessity  of  a  crowded  population,  subject  to 
a  very  arbitrary  control  over  their  comfort  by  a  few 
wealthy  persons,  and  devoted  to  unwholesome  employ- 
ment. Surely  such  establishments  do  not  deserve  polit- 
ical favor,  where  land  is  abundant,  and  the  people  free." 

The  prospects  of  the  manufacturing  class  were  dark 
enough.  Their  political  power  had  waned.  Their  oppo- 
nents were  strong,  and  likely  to  control  the  legislation  of 
the  country  for  many  years.  The  Irish  famine  was  indeed 
a  blessing  to  us ;  opening,  as  it  did,  an  outlet  for  all  the 
breadstuffs  that  could  be  spared,  and  sending  gold  into 
the  country.  But  these  events  were  unexpected  and 
temporary ;  and  ere  long  gold  began  to  flow  eastward  to 
pay  the  increasing  European  balance.  Happily,  the 
chasm  occasioned  by  the  outflow  of  the  precious  metals 
was  filled  by  the  newly  discovered  treasures  of  California. 
Nearly  all  the  gold  found  there  came  to  the  Atlantic 
coast,  remained  for  a  short  time,  and  then  fled  to  Great 
Britain.  Though  only  a  small  portion  was  retained  in 
the  country,  the  discovery  had  the  unspeakable  value  of 

1  See  Annual  Report,  December,  1849  (pp.  690-834),  for  a  valuable  col- 
lection of  facts  respecting  the  working  of  the  law. 


456      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1855. 

furnishing  us  with  enough  to  pay  a  large  portion  of  the 
balance  due  to  foreign  nations,  thus  averting  for  several 
years  the  ill  consequences  which  otherwise  would  have 
followed  increased  importations. 

Another  cause  contributing  to  the  same  end  was  the 
transfer  of  American  securities  in  settlement  of  foreign 
indebtedness.  Ever  since  the  existence  of  our  govern- 
ment the}^  had  been  owned  abroad  in  varying  quantities. 
Most  of  the  stock  of  the  first  United-States  bank  was  thus 
held ;  also  a  large  portion  of  the  public  debt,  nearly  all 
the  three-per-cent  certificates,  and  many  of  our  railroad 
stocks,  bonds,  and  other  securities.  In  1855  it  was  esti- 
mated that  two  hundred  million  dollars  were  held  in  for- 
eign countries.^  The  transfer  of  so  many  securities  had 
the  effect  of  keeping  coin  in  the  country,  although  there 
was  an  annual  return  for  interest,  unless  invested  in  other 
securities. 

Though  the  outflow  of  gold  was  thus  checked,  the  money- 
market  became  dearer,  and  the  inclination  to  begin  more 
undertakings  was  wanting.  Said  a  competent  authority 
in  1855,  "  Since  the  destruction  of  the  old  tariff,  money 
has  been  hard  to  obtain,  and  business-men  have  been 
distressed,  year  after  year,  without  intermission.  The  mo- 
ment money  becomes  a  little  easier,  away  go  the  orders  for 
foreign  goods,  to  be  paid  for  in  specie."  ^  Of  course,  the 
value  of  money  was  immediately  enhanced,  and  debtors 
felt  the  renewed  pressure.^ 

Every  branch  of  industry  suffered  during  this  period  ; 
but  the  woollen-manufacturers  suffered  the  worst.     The 

^  Finance  Report  for  Year  ending  l.SSfi,  p.  426. 

2  A  Review  of  the  Tariff  of  184G,  etc.,  Boston,  1855,  p.  7.     3  lUd.,  p.  14. 


18.-7.]  TARIFF   LEGISLATION.  457 

iron-manufacturers,  indeed,  saw  gloomy  times,  and  sus- 
tained heavy  losses ;  but  they  were  not  so  heavily  handi- 
capped as  the  woollen-manufacturers,  who  were  obliged 
to  pay  more  for  their  raw  materials  in  consequence  of  the 
duties  levied,  and  which  were  not  recovered  in  the  sale  of 
the  manufactured  product.  The  tariff  of  1846  raised  the 
duty  on  imported  wool  to  thirty  per  cent ;  while  it  reduced 
the  duty  on  miported  flannels  and  blankets  to  twenty-five 
and  thirty  per  cent,  and,  on  the  coarser  fabrics,  to  twenty- 
five  per  cent. 

As  these  low-priced  manufactures  of  wool  were  the 
chief  in  quantity  and  value  manufactured  at  that  time, 
the  business  was  prostrated  by  the  reduction  of  the  duty. 
"  The  home  market  was  destroyed  for  the  farmer  :  in  the 
foreign  market  he  could  not  compete ;  and  the  flocks  were 
sent  to  the  slaughter  because  the  woollen-factories  had 
been  sold  at  auction,  or  converted  to  other  services."  ^  In 
1844  woollens  yielded  $3,313,495  duties:  in  1855  the 
national  income  from  the  same  source  was  $6,088,157,  or 
nearly  twice  as  great  as  it  had  been  ten  years  before. 
Indeed,  in  1857  the  industry  was  declared  to  be  on  the 
"  verge  of  extinction." 

The  cotton  and  iron  industries  had  fared  better.  The 
American  iron  production  for  1850  was  $60,485,655,  while 
the  foreign  importation  for  the  same  period  was  only 
816,333,145.  The  secretary  of  the  treasury  declared  that 
the  conclusion  was  irresistible,  that  the  production  and 
manufacture  of  iron  in  the  United  States,  within  a  very 
short  period,  would  exclude  the  foreign  production  and 
manufacture.      Of    cotton,   he    added   that    already   the 

1  Tariff  Report,  Aug.  11,  1856,  No.  342,  34  Cong.,  first  session. 


458      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1853. 

American  manufacturer  was  in  possession  of  the  home 
market  for  all  the  coarser  fabrics,  and  beginning  suc- 
cessfully to  manufacture  the  finer  ones.^ 

The  drain  of  gold,  however,  in  keeping  prices  down, 
and  business  sluggish,  had  the  further  effect,  in  due  time, 
of  diminishing  importations.  Sales  slackened,  and  the 
importer  wisely  reduced  his  stocks.     But  having  imported 

1  When  Corwin,  the  secretary  of  the  treasury,  reviewed,  in  his  annual 
report  presented  to  the  House,  Jan.  20,  1853,  the  effect  of  the  tariff  on  the 
iron  manufacture,  he  reinai-ked  that  "importations  of  bar,  pig,  and  other 
iron,  for  the  year  ending  June  30,  1845,  were  102,723  tons,  producing  duties 
amounting  to  $1,794,784;  and  for  the  year  ending  June  30,  1852,  the  imports 
were  435,149  tons,  producing  duties  amounting  to  |!3,272,812.  Thus  it  is 
seen,  that,  while  the  quantity  imported  has  increased  about  four  and  a 
quarter  times  over  that  of  1845,  the  aggregate  duties  received  are  less  than 
double  the  amount  received  from  that  source  in  1845,  and  that,  too,  under 
a  heavier  rate  of  duty  at  the  latter  period. 

"This  enormous  increase  in  the  importations  of  iron,  at  prices  so  far 
below  the  fair  or  usual  cost  of  production,  both  here  and  abroad,  while  it 
produced  no  corresponding  benefit  to  the  treasury,  destroyed,  in  a  good 
degree,  the  competition  of  our  own  producer  and  manufacturer.  The  re- 
sult then  foretold  is  now  partially  realized  :  the  foreign  producer,  by  a 
reduction  of  prices  on  his  part,  and  of  duties  on  our  part,  having  possessed 
himself  of  the  control  of  our  market,  raises  the  prices  of  iron,  it  is  believed, 
beyond  the  remunerating  point,  and  certainly  far  beyond  the  rates  ruling 
during  the  period  of  the  late  hopeless  struggle  of  our  own  manufacturer  to 
sustain  himself. 

"  Tlie  effects  of  this  state  of  things  are  felt  in  the  very  large  increase  of 
duties  consequent  upon  the  suddenly  enhanced  prices  of  iron,  which  must 
be  paid  by  our  consumers,  and  with  the  most  unfavorable  influences  upon 
our  numerous  railroad  enterprises  now  in  progress;  while  it  is  attended 
with  no  corresponding  benefit  to  those  whose  capital,  embarked  in  this 
branch  of  manufacture,  has  been  totally  lost.  On  the  other  hand,  by  this 
rise  in  the  prices  of  iron,  it  may  be  expected  that  a  new  stimulus  will  be 
given  to  that  branch  of  American  labor,  which  may  again  be  met  by  simi- 
lar consequences  when  it  shall  liave  become  a  formidable  competitor  with 
the  foreign  producer,  ending  in  a  destructive  reduction  in  price,  and  a 
redundant  supply," 


1855.]  TARIFF   LEGISLATION.  459 

enough  to  satisfy  the  probable  demands  of  trade,  what 
then  happened  ?  "  The  New- York  Evenmg  Post,"  in  a 
dry,  business-like  way,  stated  the  consequence :  "  From 
the  manufacturing  districts  in  England  the  advices  are, 
that,  in  the  almost  total  absence  of  orders  from  this  coun- 
try for  wool  and  cotton  goods,  the  goods  making  for  this 
market,  which  are  always  to  some  extent  in  reliance  upon 
orders,  will  be  sent  here  for  sale  on  manufacturer's 
account."  And  they  were  sent  here  in  due  time,  and 
pushed  off  in  our  markets,  by  the  agents  of  manufac- 
turers, at  a  lower  price.  This  was  not  an  altogether 
agreeable  proceeding  to  those  who  had  imported  enough, 
as  they  thought,  to  supply  the  market;  nor  did  they 
esteem  more  highly  the  foreign  manufacturers  who  had 
thus  treated  them.  Yet  this  event  ought  not  to  have 
been  unexpected,  for  it  had  happened  many  times 
before. 

As  a  revenue  measure,  and  this  is  all  the  law  purported 
to  be,  it  was  very  effective.  Indeed,  the  revenue  far  ex- 
ceeded the  general  expectation  and  the  needs  of  the  gov- 
ernment. Secretary  Walker  predicted  that  the  law  would 
yield  annually  $23,500,000.  But  in  the  year  1847-48 
the  amount  was  $31,757,070.96;  for  the  year  1850-51, 
$49,017,567.92 ;  and  five  years  later  the  amount  had  ex- 
panded to  $64,022,863.50,  or  nearly  treble  what  Avas 
expected  in  the  beginning.  The  revenue  was  excessive, 
and  the  expediency  of  lessening  it  was  admitted  by  the 
opponents  as  well  as  by  the  friends  of  a  protective 
policy.^ 

1  In  April,  1825,  a  writer  in  Niles's  Register  remarked,  "The  couiiuerce 
of  the  United  States,  at  least  in  respect  to  importations,  has  Veen  increas- 


460      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1853. 

But  how  should  the  reductiou  be  made  ?  Guthrie,  the 
secretary  of  the  treasury  during  President  Pierce's  admin- 
istration, recommended  in  his  first  annual  report  that 
the  free  list  be  extended  to  embrace  articles  which  the 
year  previously  had  yielded  a  revenue  of  18,000,000,  and 
that  the  remainder  be  arranged  in  two  classes,  —  those  in 
one  class  paying  a  duty  of  a  hundred  per  cent ;  and  those 
in  the  other,  one-quarter  as  much.  By  this  re-arrangement 
and  equalization,  he  thought  the  duties  on  those  two 
classes  would  be  reduced  14,500,000,  beyond  which  reduc- 
tion no  other  was  expedient,  previous  to  the  extinction  of 
the  public  debt.  In  his  next  report  the  subject  was  dis- 
cussed more  thoroughly,  and  a  very  considerable  body  of 
facts  relating  to  the  subject  was  presented.  He  threw  a 
strong  light  on  the  question  of  admitting  wool  free  of 
duty,  in  order  to  enable  the  American  manufacturer  to 
cope  successfully  with  foreign  competitors. 

Those   in  favor   of  protection,   however,   proposed   to 

ing  for  more  than  a  year  past,  notwithstanding  the  increase  of  our  own 
manufactories,  because,  by  the  success  of  the  last,  the  people  are  able 
to  consume  more.  The  duties  secured  at  Boston  in  1823  amounted  to 
$3,&i7,644,  and  in  1824  to  $4,193,112;  and  on  the  11th  instant,  those  bonded 
for  at  New  York  on  that  day  were  equal  to  .flTSO.OOO.  The  revenue  of  the 
present  year  will  be  very  large  ;  but  whether  it  will  render  good  or  evil 
to  the  nation,  we  shall  know  hereafter.  We  have  been  fatally  convinced 
that  the  public  treasury  may  flourish  while  the  people  are  verging  to  a 
general  bankruptcy.  Such  is  the  nature  of  the  system  that  we  rely  on, 
which  must  ever  be  the  case  when  indirect  taxation  is  mainly  resorted  to 
for  the  support  of  the  government  "  (vol.  xxviii.  p.  98).  At  this  time,  orders 
were  received  in  Philadeljjliia  for  shipping  large  quantities  of  pig-iron  to 
England.  The  great  demand  for  cotton  goods  in  INIexico  and  South  America 
caused  a  heavy  advance  in  cotton,  first  in  England,  and  afterward  in  the 
United  States;  and  this  event  led  to  a  general  speculative  rise  in  the  price 
of  nearly  all  commodities. 


I860.]  TARIFF    LEGISLATION.  461 

reduce  the  revenues  in  another  way.  This  was  by  fixing 
them  so  high  as  to  reduce  importations,  and  thus  dimin- 
ish the  revenue.  They  declared  that  a  reduction  of  the 
duties  had  had  the  opposite  effect,  which  the  history  of 
the  tariff  law  of  1846  abundantly  proved.  Not  so  thought 
the  majority.  Accordingly,  the  duties  were  very  generally 
reduced  to  the  extent  of  twenty  and  twenty-five  per  cent 
ad  valorem,  with  an  enlargement  of  the  free  list.^ 

The  next  year  the  duties  fell  below  the  requirements 
of  the  government,  and  the  expediency  of  increasing  the 
revenue  was  considered.  The  unexpected  decrease  was 
regarded  the  effect  of  temporary  events :  hence  the  law 
was  not  disturbed  for  four  years.  Then,  just  as  that 
terribly  awful  drama,  the  civil  war,  was  to  begin,  the  du- 
ties were  increased  to  pay  the  indebtedness  into  which  the 
nation,  through  inexcusable  misgovernment  during  a  pe- 
riod of  general  prosperity,  had  miserably  fallen. 

We  have  now  traced  the  history  of  the  revenue  legis- 
lation of  our  government  through  seventy  years  of  con- 
stitutional existence.  We  have  sought  to  show  what 
were  the  primary  and  also  the  secondary  objects  of  this 
legislation,  and  how  well  or  ill  these  were  attained.  We 
have  seen  that  during  the  greater  portion  of  that  period 
the  leading  object  of  Congress  was  to  encourage  home 
manufactures.  During  the  shorter  period  of  fourteen 
years  only,  was  the  chief  object  to  obtain  a  revenue.  We 
have  seen,  that,  however  weak  the  faith  of  others  in  the 
efficacy  of  the  government  to  aid  manufacturers,  theirs 
was  never  shaken.     Moreover,  having  once  received  such 

1  Act,  March  3, 1857, 


462      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.        [1860. 

aid,  their  faith  that  the  government  would  continue  to 
protect  them  never  vanished.  Did  the  government  for 
a  time  reverse  its  policy,  as  in  1832,  the  manufacturers 
still  believed  that  the  arm  of  the  government  would  be 
outstretched  again  in  their  behalf.  Did  the  government 
forget  them  in  1846,  they  still  cherished  the  hope  that 
eventually  her  smiles  and  favors  would  return. 

The  least  the  historian  can  say,  therefore,  is,  that  pro- 
tection, whether  realized  in  legislation,  or  existing  only 
in  hope,  at  all  times  proved  a  stimulus  to  the  manufac- 
turer, leading  him  to  embark  in  new  enterprises,  and  to 
continue,  even  amid  discouragements  and  losses,  having 
faith  in  the  coming  of  a  more  prosperous  day.  Whether 
the  government  were  wise  to  establish  a  policy  whicli 
should  give  birth  to  so  many  gilded  hopes,  it  is  not  our 
purpose  to  inquire.  That  it  did  so,  is  a  fact  which  con- 
stantly appears  in  the  record  of  these  seventy  years. 

When  the  news  of  the  discovery  of  gold  in  Australia 
reached  Europe,  thousands  swarmed  thither,  taking  little 
thought  of  the  dangers  they  were  to  encounter.  The 
river  wherein  lay  the  richest  deposits  was  surmounted  on 
either  side  with  high  walls  of  rock,  on  which  the  sun 
shone,  and  whose  rays,  reflecting  into  the  eyes  of  the 
niiners,  caused  incurable  blindness.  In  delving  in  the 
waters,  too,  amid  an  almost  torrid  heat,  fevers  were  fre- 
quent and  deadly ;  and  the  vast  numbers  who  thus  per- 
ished in  their  mad  attempt  to  get  gold  were  buried  not 
far  away  from  the  scene,  where  their  graves  to  this  day 
testify  to  their  folly.  But  neither  blindness,  nor  fever, 
nor  constant  death,  deterred  the  living  from  following  the 
bewitching  pursuit.     A  similar  effect  was  produced  by 


I860.]  TARIFF    LEGISLATION.  463 

the  action  of  the  government  in  granting  protection  to 
manufacturers.  Thousands  perished  in  the  attempt  to 
make  their  fortunes ;  but  no  failures,  however  great  or 
awful,  kept  others  from  repeating  the  experiment  so  long 
as  the  government  was  on  their  side.  Perhaps  only  ashes 
were  in  its  hand:  but  the  manufacturer  thought  other- 
wise ;  and,  in  his  eagerness  to  grasp  the  prize,  he  persisted 
through  suffering  and  loss,  with  a  will,  and  often  with 
a  desperation,  that  revealed  his  latent  fortitude,  and  his 
sublime  faith  in  the  power  and  willingness  of  the  govern- 
ment to  aid  and  to  save.  However  dark  the  night,  a 
higher  tariff,  it  was  believed,  would  dispel  the  darkness. 
For  this  he  implored  with  the  same  earnest  faith  that  Ajax 
showed  when  he  prayed  for  light  on  Scamander's  shore. 

But  was  the  faith  of  this  great  class,  endowed  for  the 
most  part  with  more  than  ordinary  intelligence,  in  the 
power  of  the  government  to  grant  substantial  aid,  founded 
wholly  in  error?  Such  is  the  teaching  of  many.  Gov- 
ernmental protection  to  manufacturers  has  often  been 
declared  to  be  an  impossibility;  and  yet  we  find  this 
class,  at  the  end  of  seventy  years'  experience,  believing 
otherwise,  —  indeed,  having  a  much  stronger  faith  in  this 
doctrine  than  they  had  in  the  beginning. 

What  the  government  did  for  manufacturers,  or  failed 
to  do,  cannot  be  answered  with  perfect  exactness,  because 
there  were  always  so  many  causes  at  work  in  harmony 
with  or  against  its  purpose.  When  the  government  put 
forth  its  energies  to  encourage  and  protect,  we  have  seen 
how  they  were  destroyed  or  neutralized  by  the  operation 
of  foreign  agencies.  Protectionists  were  always  encoun 
tering  surprises  for  which  they  were  not  prepared.    What 


4(34      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1S60. 

would  have  been  the  effect  of  governmental  action,  had 
not  counter  agencies  supervened,  we  shall  not  attempt  to 
determine :  we  only  note  the  fact,  that,  in  consequence 
of  their  swift  appearing  and  strenuous  resistance,  the 
well-intended  efforts  of  the  government  were  often  set  at 
nought. 

In  the  foregoing  pages,  we  have  traced,  though  not  so 
minutely  as  may  be  wished,  the  rise  and  progress  of  the 
most  prominent  of  these  agencies.  Though  some  of  them 
originated  in  foreign  lands,  yet  it  must  be  acknowledged 
that  one  of  the  most  malign  agencies  was  purely  a  native 
creation,  —  an  excessive  depreciated  paper  money,  not 
resting  on  the  solid  basis  of  gold  and  silver.  Whenever 
prices  were  borne  aloft  upon  the  Dsedalion  wings  of  paper 
money,  the  manufacturer  never  escaped  loss.  A  plethora 
of  paper  money  enhanced  prices,  and  stimulated  importa- 
tions; and,  when  settling-day  finally  came,  the  country 
was  drained  of  its  specie,  and  only  the  dregs  of  paper 
money  were  left.  Every  industry  is  the  expression  of  a 
universal  industrial  life ;  and,  when  misfortune  overtakes 
one,  the  whole  tree  is  affected.  Like  those  lofty  palaces 
of  ancient  Troy  fired  by  the  treacherous  Greeks,  — 

"  The  palace  of  Deiphobus  ascends 
In  smoky  flames,  and  catches  on  his  friends ; 
Ucalegon  burns  next." 

And  the  collapse  of  a  circulating  medium  has  always 
injured  the  manufacturing  interest,  in  common  with  every 
other  in  the  country.  Next  to  the  foreigner,  an  artifi- 
cially swollen  money  has  been  the  manufacturer's  worst 
enemy.     It  has  been  powerful  enough  to  neutralize  the 


ISGO.]  TARIFF   LEGISLATION.  465 

effect  of  every  tariff,  however  well-intended  for  protec- 
tion. Pretending  to  be  his  friend,  it  has  always  proved 
to  be  his  foe :  snbtle  and  seductive,  like  a  serpent,  in  its 
movements  in  the  beginning,  nothing  has  been  surer  than 
its  deadly  bite  in  the  end. 

Yet,  beside  alluring  persons  to  engage  in  manufactures, 
the  government  did  accomplish  something  for  them.  It 
did  at  times  certainly  somewhat  check  importations,  and 
thus  give  our  manufacturers  better  control  of  the  market. 
Had  this  never  been  the  case,  foreigners  would  not  have 
labored  so  zealously  to  secure  the  repeal  of  those  laws 
which  were  enacted  for  the  special  benefit  of  the  American 
manufacturer.  His  eagerness  to  have  them  enacted,  and 
the  equal  eagerness  of  the  foreign  manufacturer  to  have 
them  repealed,  are  two  luminous  facts  which  converge  at 
the  same  point ;  namely,  that  both  classes  believed,  at 
least,  that  such  laws  restricted  importations,  and  were 
therefore  beneficial  to  one  class,  and  injurious  to  the 
other.  In  no  other  way  can  their  conduct  be  fairly  inter- 
preted. Whether  their  interests  were  actually  hostile  or 
not,  they  believed  they  were ;  and  consequently  the  one 
class  invoked  the  protection  of  the  government,  and  the 
other  sought  in  every  way  to  prevent  it,  and  to  overcome 
it  when  granted. 

The  ability  of  the  government  to  aid  the  home  manu- 
facturer, and  the  perennial  belief  that  it  would  thus  act, 
have  been  far  more  stimulating  to  him  than  is  imagined, 
except  by  those  who  have  candidly  investigated  the  sub- 
ject. The  actual  or  expected  course  of  the  government 
has  always  been  the  cloudy  pillar  by  day  and  the  fire  by 
night  in  the  manufacturer's  wilderness  of  trial  and  experi- 


466      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1860. 

ment.  When  most  prosperous,  he  has  ascribed  his  pros- 
perity to  the  magic  influence  of  the  tariff:  when  suffering 
the  worst,  he  has  always  traced  his  adversity  to  the  mis- 
taken course  of  the  government.  The  more  prolonged 
its  exercise  of  power,  the  stronger  has  grown  his  belief 
that  the  government  can  aid  or  injure  him. 


1789.]  THE   TONNAGE  KEVENUES.  467 


CHAPTER    VIII. 

THE  TONNAGE    REVENUES. 

Three  objects  were  clearly  kept  in  view  in  enacting 
the  earlier  laws  regulating  American  commerce,  —  to  pro- 
tect and  encourage  the  construction  and  employment  of 
our  own  vessels ;  to  reserve  the  coasting-trade  exclusively 
for  ourselves ;  and  to  nurture  a  numerous  body  of  skilful 
and  hardy  seamen,  not  only  as  the  necessary  resource  of 
our  commercial  marine  in  peace,  but  as  the  indispensable 
support  of  an  efficient  navy  in  war.^ 

For  several  years  the  Acts  of  1789  and  1790  regulated 

1  In  1842  the  committee  on  commerce,  of  which  John  P.  Kennedy  was 
chairman,  made  an  elaborate  and  able  report  concerning  the  history  and 
working  of  the  navigation  treaties  negotiated  between  the  United  States 
and  other  countries.  Referring  to  the  earlier  navigation-laws  enacted  by 
Congress,  the  committee  remarked,  "  The  system  was  avowedly  and  dis- 
tinctively protective  of  the  interest  it  had  in  charge.  It  was  a  system  of 
restrictions  upon  the  commerce  and  shipping  of  foreign  nations  for  the 
benefit  of  our  own.  The  American  ship-owner  was  guarded  and  protected 
against  the  competition  of  the  whole  world  by  discriminations  in  his  favor, 
in  the  duties  both  on  merchandise  and  tonnage,  as  well  as  in  the  port 
charges,  and  other  expenses  of  his  voyage  ;  provision  was  made  for  the 
encouragement  of  American  seamen  ;  and  the  system  was  administered 
with  a  strict  and  jealous  regard  to  the  privileges  which  it  conferred.  If 
the  severity  of  these  restrictions  was  occasionally  relaxed  in  favor  of  par- 
ticular nations,  it  was  never  without  a  specific  equivalent;  and  the  subject 
was  left  at  all  times  at  the  disposal  of  the  government,  to  be  controlled  by 
the  legislation  of  Congress,  as  the  occasion  might  demand." -=- No.  835 
27  Cong.,  second  session. 


468    fustancial  history  of  the  united  states,     [isis. 

mainly  the  tonnage  duties  on  foreign  and  American  ves- 
sels. Occasionally  a  treaty  was  made  with  a  foreign 
power,  containing  a  clause  which  placed  its  commerce  on 
the  footing  of  the  most  favored  nations  "  in  regard  to  com- 
mercial advantages."  No  pledge,  however,  was  given 
against  such  discriminations  as  might  be  found  necessary 
to  promote  our  own  trade,  further  than  an  agreement  that 
they  should  not  be  applied  to  the  party  with  whom  the 
negotiation  was  made,  without  also  ajDplying  it  to  all  other 
nations.  The  system  thus  established  was  continued  until 
1815,  when  a  new  policy  was  adopted. 

Until  the  troubles  arose  with  Great  Britain,  the  wings 
of  American  commerce  joyously  flew  over  every  sea.  Not 
only  was  the  entire  coasting-trade  secured  to  our  country, 
but  a  carrying-trade  with  the  West  Indies  and  the  British 
Possessions,  the  East  Indies  and  almost  every  part  of  the 
world,  suddenly  grew  to  vast  size  and  importance.  Wars 
among  European  powers,  and  blockades,  obstructed  their 
channels  of  commerce,  but  favored  the  spread  of  our  own. 
Our  sails  multiplied  as  theirs  withdrew.  During  the  years 
1805,  1806,  and  1807,  the  annual  quantity  of  foreign  prod- 
uce carried  in  American  vessels  was  enormous.^  These 
transactions  added  vastly  to  our  national  wealtli. 

When  peace  came,  the  scene  was  greatly  changed.  It 
was  evident  that  a  new  and  more  powerful  rivalry  for 
commerce  was  likely  to  spring  up  among  all  maritime 
nations.  Great  solicitude  Avas  therefore  experienced  in 
this  country  for  the  adoption  of  such  a  system  as  would 
best  secure,  permanently,  our  commerce  against  the  rivalry 
of  other  nations. 

1  Pitkin's  Statistical  View,  p.  143. 


1815.]  THE   TONNAGE   REVENUES.  469 

Our  chief  rival  was  Great  Britain ;  and,  as  it  was  be- 
lieved that  we  could  navigate  the  ocean  with  equal  advan- 
tage, a  treaty  was  proposed  establishing  certain  privileges 
of  trade  and  navigation  on  the  basis  of  reciprocity.  The 
proposition  was  accepted  by  Great  Britain,  but  with  a 
scrupulous  exclusion  of  her  colonies  and  other  foreign 
possessions.  The  treaty  was  signed  the  3d  of  July,  1815, 
and  was  the  first  reciprocity  treaty  between  the  two 
nations.  It  was  limited  to  four  years,  and  was  then 
extended  for  ten  years  longer,  with  an  indefinite  contin- 
uance, sybject  to  one  year's  notice  of  the  desire  of  the 
other  party  to  annul  it. 

The  principal  stipulations  in  this  treaty  were,  that  no 
higher  or  other  duties  or  prohibitions  on  imports  or  ex- 
ports, respectively  the  growth,  produce,  or  manufacture 
of  the  British  territories  in  Europe  on  the  one  side,  or  of 
the  United  States  on  the  other,  should  be  laid  by  either 
party  against  the  other,  than  were  laid  on  similar  articles 
which  were  the  growth,  produce,  or  manufacture  of  other 
nations ;  secondly,  that  the  vessels  of  each  nation  should 
be  admitted  into  the  ports  of  the  other  on  the  same  terms, 
in  regard  to  tonnage  duties  and  charges,  as  their  own ;  and, 
thirdly,  that  the  same  duties  were  to  be  paid  in  the  ports 
of  each,  on  importations  which  were  the  growth,  produce, 
or  manufactures  of  the  other,  whether  imported  in  British 
or  American  vessels. 

The  treaty  was  regarded  an  experiment.  The  restric- 
tion of  its  application,  on  the  British  side,  to  British 
territories  in  Europe ;  the  rigid  exclusion  from  it  of  any 
arrangement  for  trade  with  her  colonies ;  and  the  limita- 
tion  of   the   privileges   to  commodities   which  were   the 


470      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1830. 

growth,  produce,  and  manufacture  of  the  contractmg  par- 
ties, —  show  with  what  caution,  and  even  distrust,  this 
first  departure  from  the  old  system  of  international  com- 
mercial regulation  was  adopted. 

How  did  the  treaty  affect  the  commerce  of  the  two  na- 
tions ?  On  the  side  of  Great  Britain,  it  has  been  generally 
acknowledged  that  it  was  an  unequivocal  good.  On  the 
American  side,  opinion  has  been  divided ;  yet  opposition 
was  not  strong  enough  in  the  United  States  to  prevent  a 
renewal  of  the  treaty :  on  the  other  hand,  no  treaty  of 
the  kind  was  made  with  any  other  nation  for  more  than 
ten  years  afterward. 

Trade  began  to  decline  soon  after  the  treaty  took  effect, 
with  the  West  Indies  and  in  other  quarters.  A  great 
cry  was  heard  in  favor  of  modifying  the  treaty ;  so  that 
American  vessels  might  be  permitted  to  take  cargoes  to 
the  West  Indies,  and  the  British  Possessions  in  North 
America.  From  these  great  highways  of  trade,  Ameri- 
cans had  formerly  derived  large  profits  ;  and  they  did  not 
relish  the  action  of  the  government  requiring  them  in  the 
future  to  go  elsewhere.  Complaints  were  unceasing.  Fi- 
nally, in  1830,  a  modification  was  effected  called  "  Mc- 
Lane's  arrangement."  This  consisted  in  allowing  our 
vessels  to  take  cargoes  to  and  from  the  British  colonial 
ports ;  but  the  desired  effect  of  this  arrangement  was  at 
once  destroyed  by  a  change  in  the  duties,  whereby  mer- 
chandise shipped  in  American  vessels  was  subjected  to  a 
very  much  higher  duty  than  when  transported  in  English 
ones. 

Sabine  ^  truthfully  describes  how  our  trade  was  affected 

1  N.  Am.  Rev.,  vol.  Ivii.  p.  318. 


1830.]  THE   TONNAGE   REVENUES.  471 

by  this  arrangement.  First,  it  was  a  serious  injury  to  our 
cotton  ships.  The  building  of  vessels  in  New  Bruns- 
wick and  Nova  Scotia,  for  sale  in  England,  was  an  ex- 
tensive business ;  and  he  had  known  vessels  built  for  this 
purpose  to  go  to  a  cotton-port  at  the  South,  on  their 
voyage  home,  and  obtain  freights  which  netted  a  fifth  or 
quarter  of  their  entire  cost.  So,  too,  when  cotton  paid 
well,  the  ships  which  were  built  for  use  in  the  lumber- 
trade,  and  which  were  ordinarily  employed  in  this  way, 
were  to  be  found  at  Savannah  or  New  Orleans,  accepting 
an  eighth  or  a  sixteenth  of  a  penny  less  on  the  pound  than 
our  own  vessels.  Nor  was  this  the  whole  of  the  mischief: 
since  colonial  ships  often  went  in  quest  of  cotton  when  the 
rates  were  low ;  and  others,  by  increasing  the  number  of 
freighters,  induced  competition,  which  resulted  in  loss  to 
all.  Before  the  "  arrangement,"  no  such  interference  ex- 
isted ;  because  colonial  vessels  did  not  carry  cotton  at  all, 
while  those  belonging  to  the  mother-country  could  load 
with  it  if  they  entered  a  colonial  port  on  their  way  to  the 
United  States. 

Had  there  been  any  thing  to  compensate  for  this  loss, 
it  might  have  been  borne  ;  but  there  was  not.  The  earn- 
ings of  colonial  vessels  were  taken  from  the  earnings 
of  our  own  ships.  To  be  thus  underbidden  in  our  own 
ports,  in  the  carrying  of  our  great  staple,  was  not  a  busi- 
ness which  the  American  could  cheerfully  contemplate ; 
nor  are  we  surprised,  therefore,  to  learn  of  Sabine  ex- 
pressing the  hope  that  this  kind  of  reciprocity  would 
speedily  terminate. 

This  arrangement  seriously  injured  our  coasting  busi- 
ness.    Nor  did  it  secure  to  New  England  a  proper  share 


472      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1849. 

of  the  trade  in  suppl^dng  the  British  West  Indies  with 
the  commodities  which  the  United  States  could  spare,  and 
which  were  sent  to  the  sugar-islands  of  other  European 
powers.  The  trade  of  the  planters  was  a  boon  greatly 
desired,  but  since  1830  how  much  of  it  had  the  Northern 
States  obtained?  One  flash  of  light  will  disclose  the  sit- 
uation. An  American  house  resolved  to  send  to  the 
Island  of  Trinidad  a  brig  of  their  own,  and  a  colonial  brig 
which  they  had  chartered,  both  laden  with  lumber.  They 
procured  the  material  from  Maine,  where  it  was  grown, 
and  prepared  for  market.  The  lumber  for  their  own  ves- 
sel was,  of  course,  laden  in  American  waters;  but  that 
designed  for  the  other  was  taken  in  raft  to  a  neighboring 
port  of  New  Brunswick,  within  sight  of  their  counting- 
room  windows.  The  two  vessels  put  to  sea  the  same  day, 
and  their  cargoes  were  sold  at  a  similar  price.  The  earn- 
ings of  each  vessel,  on  the  principles  of  reciprocity,  ought 
to  have  been  alike,  or  to  have  differed  only  in  proportion 
to  the  size  of  the  cargo ;  but  an  adjustment  of  the 
accounts  proved  that  the  voyage  under  the  British  flag 
produced  eight  hundred  and  ninety-three  dollars  more 
than  that  conducted  under  the  American. 

Notwithstanding  this  inequality  in  the  navigation  laws 
of  the  two  nations.  Great  Britain  did  not  repeal  hers 
affecting  the  colonies  until  June  26,  1849,  —  tliirty-four 
years  after  repealing  those  which  concerned  the  direct 
trade  with  the  United  States.  The  new  law  placed  the 
colonies  in  the  same  position  with  that  occupied  by  Great 
Britain,  with  perhaps  even  greater  freedom ;  for,  while 
the  coasting-trade  of  the  British  Island  was  still  exclu- 
sively reserved  to  British  ships,  the  Legislature  of  each 


1824.]  THE   TONNAGE   REVENUES.  473 

colony  might,  by  addressing  her  Majesty,  procure  a  per- 
mit to  throw  its  coasting-trade  open  to  foreigners.^ 

At  last,  therefore,  freedom  of  trade  was  won  with  Great 
Britain.  But  the  struggle  had  been  long,  costly,  and  dis- 
astrous to  the  owners  of  American  shipping.  In  the 
treaties  negotiated.  Great  Britain  had  unquestionably 
been  the  gainer.  Let  us  now  turn  to  the  regulations 
established  with  other  nations. 

Just  before  making  the  treaty  with  Great  Britain  in 
1815,  Congress  passed  an  Act  repealing  all  discriminating 
tonnage  and  impost  duties  with  respect  to  foreign  vessels 
and  those  of  the  United  States,  so  far  as  they  concerned 
the  produce  and  manufactures  of  the  nations  to  which 
such  foreign  ships  might  belong.  This  repeal  was  to  take 
effect  in  favor  of  any  foreign  nation  which  should  abolish 
similar  duties  in  favor  of  the  United  States.  In  1824 
Congress  declared  the  suspension  of  all  discriminating 
duties  on  the  vessels  and  produce  of  several  European 
nations  which  had  accepted  the  terms  proffered  by  the* 
Act  of  1815,  and  conferred  on  the  President  authority  to 
extend  the  several  exemptions  to  all  nations  thereafter 
complying  with  its  requirements ;  and  in  1828  an  Act  was 
passed,  authorizing  the  President  to  extend  the  exemp- 
tion in  regard  to  alien  duties,  which,  by  the  Acts  of  1815 
and  1824,  were  restricted  to  the  productions  of  the  coun- 
try to  which  the  vessels  belonged,  and  to  the  productions 
of  any  foreign  country  imported  into  the  United  States  in 
the  vessels  of  any  nation  which  would  allow  a  similar 
exemption  in  favor  of  the  United  States. 

Many  of  the  Northern  European  States  took  advantage 

1  Dem.  Rev.,  vol.  sxvi.  p.  65. 


474      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1824. 

of  these  requirements  to  comply  with  them  ;  and  thus 
gradually  the  commerce  of  the  United  States  with  other 
nations  was  placed  on  the  same  legal  foundation.  But 
whether  there  was  as  strict  equality  in  other  respects  as 
in  law,  is  another  phase  of  the  matter.  It  has  been  con- 
tended there  was  not.  It  has  been  asserted  that  the  ves- 
sels of  Northern  Europe  could  be  built  and  manned  and 
navigated  cheaper  than  ours,  and  therefore  that  they  had 
a  real  advantage  over  those  of  the  United  States  in  com- 
peting for  the  commerce  of  the  world. 

But  if  inequalities  did  exist  in  these  regards,  what 
caused  them  ?  Were  they  not  the  inevitable  effect  of 
the  tariff-laws  which  Congress  enacted?  And  if  they 
were,  then  our  conduct  can  be  explained  in  only  one  of 
two  or  three  ways :  first,  that  it  was  more  important  to 
build  up  and  protect  our  manufactures  than  our  com- 
merce, and  therefore,  if  we  could  not  do  both,  it  were 
better  to  let  our  commerce  go ;  but,  secondly,  does  not 
*  the  history  of  our  navigation-laws  show  that  we  did 
expect  to  compete  with  foreign  nations,  hence  our  eager- 
ness to  extend  reciprocity  ?  thirdly,  that  our  government 
suffered  Great  Britain  and  other  nations  to  get  the  advan- 
tage, and  did  nothing  to  prevent  it ;  fourthly,  notwith- 
standing the  tariff-laws,  could  not  the  people  of  the 
United  States  have  held  more  of  their  foreign  commerce 
if  the  same  interest  and  attention  had  been  given  to  its 
preservation  and  extension  which  England  displayed  in 
preserving  and  extending  hers  ? 

If  our  negotiations  with  Great  Britain  did  not  bring 
forth  the  fruit  desired,  surely  our  trade  regulations  with 
Spain,  aod  especially  with  her  West-India  colonies,  were 


1834.]  THE   TONNAGE   REVENUES.  475 

causes  of  constant  irritation  to  those  engaged  in  com- 
merce. From  the  time  of  opening  trade  with  Cuba  until 
1832,  American  vessels  were  obliged  to  pay  in  the  ports 
of  that  island  the  enormous  duty  of  two  dollars  and  a 
half  per  ton.  After  that  date,  however,  the  duty  was 
reduced  two-fifths.  But  in  the  ports  of  Porto  Rico  the 
tonnage-duty  was  only  one  dollar,  although  the  duties  at 
both  islands  were  levied  by  virtue  of  a  royal  order  of 
the  Spanish  Government.  It  was  supposed  by  Ameri- 
can shippers  for  a  long  time  that  this  great  inequality 
arose  from  a  misconception  of  the  order  of  the  intend- 
ant  of  Cuba.  The  inequality  had  existed  in  practice 
ever  since  the  opening  of  trade  with  Cuba  ;  and  it  was 
conjectured,  in  1839,  that  the  merchants  of  the  United 
States  had  paid  by  that  time,  in  the  form  of  extra  ton- 
nage-money, in  the  i)ort  of  Havana,  two  million  dollars. 
There  is  another  fact  equally  singular :.  while  a  duty  of 
one  dollar  per  ton  was  levied  on  American  vessels  in  the 
ports  of  Porto  Rico,  no  higher  duty  than  sixty-two  and  a 
half  cents  was  levied  on  English,  French,  and  foreign  ves- 
sels. Thus  our  commerce  in  the  Spanish  colonial  ports 
was  placed  in  a  far  worse  plight  than  that  of  other  for- 
eign nations. 

In  1834  an  American  vessel  of  one  hundred  tons  paid 
a,  hundred  and  sixty-seven  dollars  more  as  tonnage-duty 
when  entering  a  Spanish  port,  than  did  a  Spanish  vessel  of 
the  same  size  when  entering  an  American  port.  Surely 
a  difference  so  great  tended  to  prevent  American  com- 
merce from  competing  with  Spanish  vessels. 

Still  worse  things  must  be  told.  At  one  time  the 
difference  between  the  rates  of  duty  charged  on  importa- 


476      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1834. 

tions  in  Spanish  and  American  vessels,  on  some  articles, 
was  from  thirty-three  and  a  third  to  fifty  per  cent  in 
favor  of  the  former.  Moreover,  the  duties  on  rice  and 
flour,  our  two  principal  articles  of  export  to  Cuba,  had 
been  increased  by  the  Spanish  authorities;  while  the 
duty  imposed  by  our  government  on  coffee  and  molasses, 
the  two  principal  commodities  of  the  island,  had  been 
greatly  reduced.  Coffee,  indeed,  had  been  admitted  for 
some  years  duty  free.  The  difference  in  the  export  du- 
ties at  Havana,  in  favor  of  Spanish  vessels,  was  two  per 
cent ;  foreign  vessels  having  to  pay  four  and  a  half  per 
cent  ad  valorem^  while  Spanish  vessels  paid  only  two  and 
a  half  per  cent  ad  vahrem. 

To  get  square  with  the  Spanish  Government,  Congress, 
after  delaying  until  1832,  declared  that  Spanish  vessels 
coming  from  the  colonies  of  Spain  should  pay  in  the 
ports  of  the  United  States  the  same  rate  of  duty  on  ton- 
nage as  American  vessels  were  required  to  pay  in  Spanish 
colonial  ports.  The  secretary  of  the  treasury  was  author- 
ized to  fix  the  amount,  and  issue  regulations  for  collect- 
ing it.  As  this  law  was  not  deemed  entirely  adequate, 
two  years  afterward  the  committee  of  commerce  intro- 
duced a  bill  authorizing  "  the  secretary  of  the  treasury  to 
collect  such  additional  tonnage  upon  Spanish  vessels  en- 
tering the  ports  of  the  United  States  from  Cuba  and 
Porto  Rico  as  shall  be  equivalent  to  the  discriminating 
duty  that  would  have  been  imposed  upon  the  cargoes  of 
such  vessels,  respectively,  if  the  same  had  been  exported 
from  Havana  in  American  bottoms ;  and  also  upon  Span- 
ish vessels  clearing  out  from  the  ports  of  the  United 
States  such  additional  tonnage  duty  as  would  be  equiva- 


1834.]  THE   TONNAGE   REVENUES.  477 

lent  to  tlie  discriminating  duty  payable  upon  their  car- 
goes, respectively,  if  imported  into  Havana  in  American 
bottoms."'  A  law  was  passed  in  conformity  with  this 
recommendation,  which  proved  effective  in  putting  all 
engaged  in  commercial  intercourse  between  the  two  coun- 
tries on  the  same  basio. 


478      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1799. 


CHAPTER  IX 

WAREHOUSING  AND  DRAWBACKS. 

Ten  years  had  gone  under  the  new  constitution  before 
any  method  was  adopted  whereby  importations  could  be 
stored  previous  to  the  payment  of  duties  on  them.  In 
1799,  however,  an  Act  was  passed  allowing  fifteen  days 
to  vessels  arriving  from  foreign  ports  to  discharge  their 
cargo.  Any  goods  remaining  on  board  after  that  time, 
beside  those  which  were  reported  for  entry  in  another 
collection  district  or  foreign  port,  the  collector  was  re- 
quired to  take  and  store.  The  same  law  also  provided, 
that,  after  a  notice  of  five  days  to  the  collector,  any  goods 
might  be  taken  and  stored  with  the  consent  of  the  owner 
or  consignee,  or  master  of  the  vessel. 

Importers  were  not  required  to  pay  cash,  unless  the 
duties  were  less  than  fifty  dollars,  until  1832 ;  nor  even 
then  whenever  they  exceeded  two  hundred  dollars.  The 
importer  could  give  his  bond  payable  at  periods  varying 
from  three  to  twelve  months,  determined  by  the  nature 
of  the  merchandise,  and  the  country  whence  it  was  im- 
ported. 

This  was  the  system  established  by  the  law  of  1799, 
the  chief  characteristics  of  which  still  exist.  An  excep- 
tion, though,  was  made  with  respect  to  teas.  These  could 
be  put  in  such  stores  as  were  mutually  designated  by  the 


1799.]  WAREHOUSING   AND   DRAWBACKS.  479 

importer  and  inspector  of  the  revenue.  In  such  cases, 
bonds  without  sureties  were  taken  for  double  the  amount 
of  the  duties,  payable  in  two  years.  Collectors  were  also 
authorized  to  receive  goods  on  deposit,  to  secure  the  pay- 
ment of  duties  as  a  substitute  for  sureties  on  bonds.  If 
the  importer,  therefore,  did  not  wish  to  give  sureties,  he 
could  give  his  own  bond,  and  take  his  merchandise,  leav- 
ing with  the  collector  a  sufficient  quantity  to  insure  the 
payment  of  duties  on  the  whole. 

Under  the  system  of  credits  thus  established,  there  was 
no  strong  inducement  for  storing  goods.  Such  as  were 
found  on  board  of  vessels,  after  the  time  specified  for  un- 
loading, usually  possessed  no  great  value.  The  five-days' 
notice  provision,  previously  described,  was  adopted  for  the 
benefit  of  vessels  engaged  in  trade,  to  enable  them  to 
commence  their  return-voyage  without  delay,  and  espe- 
cially for  the  benefit  of  packets.  They  would  put  in 
what  was  called  a  five-days'  order  for  the  purpose  of  un- 
loading, and  sending  their  cargoes  to  the  public  stores, 
without  waiting  for  them  to  be  appraised,  weighed,  meas- 
ured, and  gauged. 

Goods  thus  deposited  could  remain  in  store  nine  months, 
unless  the  duties  chargeable  on  them  became  due  in  a 
shorter  period :  in  that  case,  a  sufficient  quantity  could  be 
sold  to  discharge  the  duties  on  the  whole.  The  residue 
was  sold  at  the  end  of  nine  months  under  proper  regu- 
lations in  regard  to  advertising,  their  appraisal  by  mer- 
chants, and  other  particulars  essential  to  insure  a  fair  sale. 
The  proceeds,  after  deducting  the  duties  and  charges, 
were  put  into  the  treasury,  and  afterward  given  to  the 
owner  as  soon  as  he  proved  his  right  to  receive  the  same. 


480      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1843. 

Such  was  the  earlier  warehouse  system,  which  was 
quite  satisfactory  so  long  as  the  government  allowed  an 
ample  term  of  credits  on  imports.  But  when  the  time  for 
paying  duties  was  narrowed,  especially  after  1832,  import- 
ers desired  greater  privileges  to  store  their  goods  before 
discharging  the  claim  of  the  government  thereon.  Ac- 
cordingly, the  Committee  of  Ways  and  Means  reported,  in 
1834,  that  importers  ought  to  have  the  privilege  of  pla- 
cing their  merchandise  of  every  description  in  the  custody 
of  the  customs  officials  for  twelve  months,  and  to  with- 
draw it  when  demanded  for  consumption :  in  other  words, 
they  recommended  the  adoption  of  the  English  system 
of  warehousing,  which  had  been  copied  from  the  Dutch. 
They  further  declared,  that  importers  ought  to  be  allowed 
a  credit  of  three  and  six  months  for  the  amount  of  the 
duty  from  the  date  of  withdrawal ;  but  Congress  did  not 
heed  their  recommendations.^ 

In  1842  a  radical  change  was  made  in  the  payment  of 
duties.  The  law  declared,  that,  in  all  cases  of  failure  or 
neglect  to  pay  duties  on  completing  the  entry,  the  goods 
should  be  deposited  by  the  collector  in  the  public  store. 
If  the  duties  were  not  paid  in  sixty  days,  or  ninety  days 
if  imported  beyond  the  Cape  of  Good  Hope,  the  goods, 
or  a  sufficient  amount  to  pay  the  duties,  must  be  sold  at 
auction,  after  an  appraisement  by  the  general  appraisers. 
Moreover,  under  the  old  system,  interest  was  not  exacted 
during  the  period  for  which  credit  was  given :  under  the 
new  system,  interest  was  charged  from  the  time  the  duties 
accrued  until  they  were  paid. 

From  this  change  several  noteworthy  consequences 
1  No.  195,  24  Cong.,  second  session. 


1843.]  WAREHOUSING  AND   DRAWBACKS.  481 

followed.  The  effect  of  forbearing  to  demand  duties 
when  goods  were  entered  had  been  equivalent  to  a  cash 
capital  to  the  merchant  for  a  similar  amount  during  the 
period  of  forbearance.  "  It  was,"  says  Senator  Dix,  "  un- 
questionably a  valuable  mercantile  facility  for  those  who 
had  the  benefit  of  it,  and  the  discretion  to  employ  it 
judiciously ;  but  it  had  its  public  inconveniences,  and 
it  was  very  properly  abolished."  It  was  foretold,  when 
the  change  was  introduced,  that  great  hardship  would 
follow,  unless  importers  were  permitted  to  store  their 
goods  for  a  season,  and  relieved  from  paying  duties  dur- 
ing the  interval.  But  the  period  for  storing  them  was 
shortened,  instead  of  lengthened.  The  change,  too,  oc- 
curred simultaneously  with  a  heavy  advance  in  the  rate 
of  duties. 

"It  is  a  singular  fact,"  said  the  same  authority,^  "and 
one  which  is  not  easily  to  be  accounted  for  on  any  prin- 
ciple of  public  utility  and  convenience,"  that  the  changes 
in  the  tariff  should  have  occurred  at  the  very  time  when 
"  this  extraordinary  and  violent  transition  took  place 
from  credits  to  cash  payments."  But  it  is  not  difficult 
to  understand  the  cause  of  these  changes.  They  were 
truthfully  stated  by  the  committee  on  commerce  in  1843, 
when  considering  the  expediency  of  establishing  the 
warehouse  system.  "There  seems  to  be  a  general  con- 
sent of  opinion  at  this  day,"  the  committee  say,  "that 
one  of  the  most  mischievous  agents  which  have  been  at 
work  in  producing  the  embarrassments  under  which  trade 
has  struggled  during  the  last  five  or  six  years,  has  been 
the  tendency  to  excessive  importation,  produced  in  no 

1  Speeches  and  Addresses,  vol.  i.  p.  112. 


482      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1843. 

small  degree  by  the  stimulus  administered  to  it  through 
the  laws  for  regulating  the  introduction  of  foreign  goods, 
especially  in  the  large  list  of  importations  which  were 
admitted  free  of  duty ;  that  this  tendency  was  signally 
aggravated  by  the  vast  amount  of  importation  on  foreign 
account,  and  the  transfer  of  the  business  of  foreign  com- 
merce from  the  American  to  the  foreign  merchant.  It  is 
a  prevailing  impression,  which  seems  to  be  well  sup- 
ported by  facts,  that  the  American  market  has  been 
greatly  disturbed  by  the  influx  of  large  amounts  of  for- 
eign merchandise  thrown  into  it,  chiefly  from  England, 
France,  and  Germany,  upon  foreign  consignment,  under 
circumstances  requiring  early  sales  at  auction,  without 
regard  to  any  fixed  rate  of  profit  (even  in  view  of  certain 
loss),  for  the  sake  of  speedy  remittance  of  the  proceeds ; 
that  these  consignments,  being  often  the  surplus  stocks  of 
the  nations  from  which  they  came,  were  made  without 
calculation  of  gain,  and  were  sent  to  this  country  only 
because  it  is  deemed  more  to  the  interest  of  the  nation 
producing  a  surplus  to  dispose  of  it  in  a  foreign  market 
than  its  own."  To  prevent  the  recurrence  of  this  evil, 
two  remedies  had  been  proposed  and  adopted  at  the  pre- 
vious session  of  Congress,  —  a  diminution  of  the  list  of 
goods  admitted  without  payment  of  a  duty,  and  the  pay- 
ment of  duties  in  cash.  The  committee  had  faith  in  these 
remedies.  Their  only  apprehension  was,  that  they  might 
prove  a  greater  check  to  importations  than  was  desirable.^ 
But  though  ineffectual  in  checking  importations,  these 
measures  did  have  the  unwelcome  effect  of  transferring 
the  business  of  importing  to  persons  who  possessed  large 

1  No.  103,  27  Cong.,  third  session. 


1799.]  WAEEHOUSING   AND   DRAWBACKS.  483 

capital,  and  smaller  importers  were  obliged  to  retire.  The 
dissatisfaction  of  the  latter  class  was  very  great.  Nor  did 
it  cease,  until  Congress  established  the  warehouse  system, 
the  leading  features  of  which  were,  that  goods  could  be 
imported  and  put  into  warehouses,  and  kept  there  until 
needed  for  consumption,  when  they  could  be  withdrawn, 
and  the  duties  paid  as  though  they  had  never  been  ware- 
housed ;  or  they  could  be  withdrawn,  and  exported  to 
other  countries,  without  cost,  save  that  of  storage  and 
incidental  charges.  Such  a  system  had  long  been  estab- 
lished in  Great  Britain  and  in  other  countries.  Though 
several  attempts  were  made  to  pull  it  up,  the  plant  soon 
grew  into  a  tree,  and  long  since  was  strong  enough  to 
defy  successfully  every  storm.^ 

The  repayment  of  duties  was  allowed,  by  the  Act  of  1799, 
on  all  goods  exported  within  twelve  months  to  any  foreign 
port  except  the  ports  of  any  foreign  state  immediately 
adjoining  the  United  States.  The  purpose  of  this  Act  was 
to  increase  our  navigation.  It  was  a  wise  measure ;  for 
"  otherwise  the  tax,"  as  Livingston  of  Louisiana  said, 
"  instead  of  falling  on  the  consumer,  would  have  rested 
on  the  importing-merchant,  who,  on  re-exporting  the  mer- 
chandise, must  have  done  so  with  the  load  of  the  duty  he 
had  paid."  ^  Indeed,  a  different  policy  would  have  ban- 
ished all  the  transit  trade  from  our  harbors,  confined  our 
importations  strictly  to  the  amount  needed  for  consump- 
tion, and  forced  our  merchants,  whenever  they  carried  the 
produce  of  one  foreign  nation  to  the  ports  of  another,  to  go 
abroad  to  make  up  their  cargoes.     The  drawback  system 

1  Private  bonded  warehouses  were  established  March  28, 1854. 
'■i  Cong.  Debates,  vol.  i.  pp.  560,  564. 


484      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1834. 

realized  all  the  advantages  which  were  expected  to  accrue 
from  its  establishment,  —  it  greatly  increased  the  carrying- 
trade,  gave  scope  to  the  enterprise  of  our  merchants,  ena- 
bled them,  by  assorting  their  cargoes  at  home,  to  compete 
in  foreign  markets  with  the  merchants  of  the  countries 
from  which  the  commodities  composing  such  cargoes  were 
brought. 

In  1816  another  advance  was  made  in  allowing  draw- 
backs on  exported  merchandise  manufactured  from  im- 
ported materials  which  had  been  subjected  to  a  duty. 
Previously  there  had  been  a  drawback  on  all  refined 
sugar  exported  to  other  countries.  A  bounty  of  twenty 
cents  a  barrel  on  pickled  fish  exported  had  been  given, 
which  was  supposed  to  be  equivalent  to  the. duty  on  the 
salt  used.  This  was  essentially  the  same  thing  as  a  draw- 
back. The  Act  of  1816  covered  drawbacks  on  refined 
sugar  and  spirits.  On  the  latter  a  drawback  of  six  cents 
a  gallon  was  allowed,  and  ten  cents  a  gallon  if  made 
from  molasses  of  foreign  production.  On  sugar,  in  addi- 
tion to  the  drawback  previously  allowed,  there  was  an 
increase  of  four  cents  a  pound  if  refined  from  an  imported 
product.  The  same  principle  was  afterward  extended  to 
plain  silk  cloths  imported  which  were  colored,  printed, 
stained,  dyed,  stamped,  or  painted  here,  and  to  hemp  im- 
ported which  was  afterward  manufactured  into  cordage.^ 

Some  of  these  enactments  were  grossly  violated,  espe- 

1  Act,  May  22,  1824,  18  Cong.,  first  session,  chap.  136.  On  many  occa- 
sions Congress  passed  Acts  allowing  importers  the  benefit  of  drawback  in 
cases  where  they  had  omitted,  unintentionally,  to  comply  with  all  the  for- 
malities of  the  law;  like  going  to  the  custom-house  and  taking  oath,  and 
giving  bond  within  the  ten  days  required  by  law.  A  large  number  of  cases 
is  given  in  a  report  made  in  1844,  No.  489,  28  Cong.,  first  session. 


1844.]  WAREHOUSING  AND   DRAWBACKS.  485 

cially  the  drawback  allowed  on  brandy.  Casks  containing 
imported  liquor  were  filled  with  liquor  of  inferior  quality, 
and  then  exported.  In  a  single  city  thirty  or  forty  of 
such  empty  casks,  accompanied  by  the  certificates  of  the 
importers,  were  sold  daily  to  the  distillers,  who  filled  them 
with  a  very  different  kind  of  liquor,  and  exported  them. 

This  drawback  privilege  did  not  extend  to  every  port. 
Nor  could  merchandise  carried  coastwise  in  any  other 
way  than  by  sea  get  a  drawback ;  but  after  a  time  an 
innovation  was  made  in  this  regard.  Merchandise  could 
be  carried  between  certain  places,  partly  by  land  and 
partly  by  water,  and  yet  be  exported  with  the  privilege  of 
drawback.  An  attempt  was  made  to  apply  the  principle 
everywhere,  but  failed.  The  favored  ports  were  opposed 
to  widening  the  operation  of  the  law.  This  opposition  was 
based  on  purely  selfish  considerations.  Even  as  late  as 
1836  there  were  flagrant  defects  and  inequalities  existing.^ 

These  difficulties  were  finally  overcome ;  and,  last  of 
all,  Congress  permitted  the  sending  of  Canadian  goods 
through  the  country,  to  foreign  countries,  on  the  same 
conditions  as  were  prescribed  for  the  owners  of  other 
goods.  Slowly  was  this  change  effected.  It  was  a  notable 
advance,  and  ought  to  have  been  made  long  before. 
Congress  has  always  been  a  languid  reformer. 

1  No.  399,  28  Cong.,  first  session. 


486      FINANCIAL  HISTOEY  OF  THE  UNITED  STATES.      [1799. 


CHAPTER  X. 

COLLECTION  OF  DUTIES. 

The  principal  law  by  which  duties  have  been  col- 
lected for  more  than  eighty  years,  was  passed  in  1799. 
But  it  was  impossible  to  legislate  for  all  contingencies. 
As  these  occurred,  amendments  were  sometimes  passed, 
though  too  often  Congress  took  no  note  of  them.  At 
almost  every  session,  however,  amendments  were  made, 
until  they  numbered  over  four  hundred.  TheA  Congress 
undertook  the  work  of  codification,  —  a  work  as  difficult 
to  perform  as  it  was  necessary  both  to  the  government  and 
to  the  importer.  The  secretary  of  the  treasury  was  au- 
thorized to  prepare  such  a  code.  He  performed  the  task 
with  commendable  thoroughness.  Notwithstanding  a  fa- 
vorable report  from  a  committee  of  Congress,  the  code  was 
not  adopted.  Again  and  again  was  the  attempt  made, 
only  to  fail,  until  the  revision  of  the  entire  body  of  stat- 
utes in  1874.1 

One  of  the  earliest  questions  raised  in  collecting  duties 
related  to  the  application  of  the  ad  valorem  principle. 
Hamilton  was  opposed  to  applying  it,  because  there  would 
be  stronger  temptations  to  defraud  the  revenue.  In  1816 
the  ad  valorem  principle  was  extended,  and  still  further 

1  See  House  Report  on  Need  of  Codification,  March  3, 1855,  No.  145,  33 
Cong.,  second  session. 


1832.]  COLLECTION    OF   DUTIES.  487 

ill  1824 ;  but  not  long  afterward  evil  fruits  began  to  appear. 
All  universally  admit  the  beauty  and  fairness  of  the  prin- 
ciple, if  importers  will  act  honestly  in  telling  the  govern- 
ment of  the  cost  of  their  importations.  Unhappily,  the 
temptation  to  do  otherwise  in  many  cases  cannot  be  re- 
sisted. Whenever  applied,  frauds  have  followed.  Doubt- 
less, under  any  system  of  collecting  a  revenue,  frauds  are 
committed ;  but  they  are  not  so  easily  committed  when 
specific  duties  are  levied  as  when  duties  are  assessed  on 
the  value  of  importations.  Such  was  the  well-known 
result  of  the  American  experiment  in  1832 ;  ^  yet  at  that 
time,  in  full  blaze  of  the  light  of  the  past,  a  wider  sweep 
than  ever  was  given  to  the  principle. 

For  four  years  after  1842  the  application  of  the  prin- 

1  "  The  foreign  manufacturer  consigns  his  goods  to  the  agents  whom  he 
sends  here,  at  a  price  thirty-three  per  cent  less  than  he  sells  them  to  the 
American  merchant;  and,  if  questioned  on  this  invoice  by  our  ofiScers,  his 
reply  is,  that  he  charges  our  merchants  a  profit,  and  that  his  invoice  is  the 
cost  of  the  manufacture  of  the  article. 

"  A  gentleman  in  the  city  of  Boston  who  formerly  imported  six  hundred 
dozen  calf  and  morocco  skins  has  already  been  driven  from  the  trade  by 
the  advantage  which  the  foreign  agent  possesses  over  him  in  introducing 
goods  at  less  duties. 

"Again:  the  French  manufacturer  wishes  to  send  an  invoice  of  boots 
to  this  country.  He  has  them  packed  in  cases,  sends  them  to  some  village  a 
few  miles  from  Paris,  and  at  a  few  hours'  notice  sells  them  at  auction.  His 
agent  is  the  only  bidder:  he  buys  them  at  a  price  which  saves  him  seventy- 
five  per  cent  of  the  duty  he  would  have  paid  on  the  true  invoice.  Still  his 
invoice  is  true,  sworn  to  by  the  auctioneer,  and  our  laws  can  charge  him 
with  no  wrong. 

"  As  ad!  valorem  duties  are  upon  cost  and  charges,  the  foreign  importer 
has  another  advantage,  as  he  can  got  his  goods  clear  of  port  ten  per  cent 
cheaper  than  our  merchants,  giving  him  an  advantage  of  ten  per  cent,  and 
the  duty  on  it  besides."  —  Report  of  Amasa  Walker  and  others  on  Leather 
Manufactures,  1842,  62  Niles,  p.  68. 


488      FTNAXCIAL  HISTORY  OF  THE  UNITED  STATES.       [1830. 

ciple  was  somewhat  checked ;  but  when  Walker  became 
secretary  of  the  treasury,  in  1845,  he  advocated  more 
strongly  than  ever  a  return  to  it.  The  duties  by  his 
recommendation  were  made  entirely  ad  valorem,  and  they 
continued  to  be  until  1861.  Then  specific  duties  were 
restored  in  many  cases ;  though  in  some  a  mixed  or  double 
duty,  partly  specific  and  partly  ad  valorem,  was  applied. 

Tlie  frauds  perpetrated  in  consequence  of  adopting  the 
ad  valorem  principle  were  so  great,  that  many  importers, 
ere  long,  were  driven  from  the  business.  To  prevent 
these,  the  plan  of  a  "  home  valuation "  on  all  imports 
was  adopted  in  1832.  Ingham  strongly  recommended 
this.^  He  declared,  that  so  long  as  the  current  value, 
or  rather  the  invoice  price,  of  goods  in  the  foreign  market, 
was  made  the  basis  on  which  duties  were  laid,  peculiar 
advantages  would  be  given  to  those  who  had  the  best 
opportunities  for  purchasing  or  making  up  invoices  at 
rates  below  the  current  value.  Not  only  would  they 
purchase  at  lower  prices,  but  their  duties  would  conse- 
quently be  lower.  Foreigners,  therefore,  possessed  this 
double  advantage  over  Americans.  The  inevitable  effect 
of  the  system  was  to  throw  an  extensive  branch  of  the 
importing  business  into  the  hands  of  foreign  merchants,— 
who  could  always  lay  in  their  goods  on  better  terms  than 
American  houses  having  no  connection  abroad,  —  and 
into  the  hands  of  those,  who,  whether  foreign  or  Ameri- 
can, were  the  least  scrupulous  of  the  means  of  gain.  A 
home  valuation,  he  declared,  would  not  vary  the  principle 
on  which  import  duties  were  presumed  to  be  laid,  and 
would  be  simply  an  extension  of  the  custom  which  had 

1  Annual  Treas.  Report,  December,  1830. 


1839]  COLLECTION   OF   DUTIES.  489 

long  prevailed  among  the  most  commercial  nations  of 
Europe.  Moreover,  he  strongly  believed  in  the  practica- 
bility of  such  a  valuation.!  This  mode  of  valuing  imports 
subject  to  an  ad  valorem  duty  was  incorporated  into  the 
tariff  of  1832,  but  was  not  to  be  employed  for  ten  years. 
Before  that  time  came,  opposition  to  trying  the  experi- 
ment was  so  strong,  that  Congress  repealed  the  law. 
During  President  Pierce's  administration  it  was  proposed 
to  apply  the  idea ,  but  Guthrie,  the  secretary  of  the  treas- 
ury, was  opposed  to  it,  and  furnished  cogent  reasons  why 
the  experiment  should  not  be  tried.  Guthrie's  views  pre- 
vailed ;  and  since  his  day  no  one  has  had  the  hardihood  to 
champion  the  idea.^ 

It  was  early  discovered  that  the  collection  laws  were 
very  unequal  in  their  operation.  Thus,  only  a  few  ports 
were  open  for  the  discharge  of  goods  which  were  brought 
from  beyond  the  Cape  of  Good  Hope.     In  1839  Massa- 

1  "Ordinary  experience,  skill,  and  attention,  on  the  part  of  the  proper 
officers,  will  enable  them  to  determine  with  all  necessary  accuracy  the  cur- 
rent value  in  their  own  vicinity;  and  the  mass  of  information  which  might 
readily  be  collected  to  correct  error,  if  any  should  be  made  by  them,  could 
not  fail  to  secure  a  just  and  equal  appraisement.  This  being  accomplished, 
the  government  will  receive  the  whole  duty  paid  by  the  consumer,  and  no 
more ;  the  price  of  the  goods  will  be  more  steady ;  merchants  will  be  ex- 
posed to  less  hazard ;  and  the  opportunity  of  fair  competition  between  the 
American  and  foreign  merchant,  so  far  as  it  can  be  effected  by  the  action 
of  the  government,  will  be  restored  to  that  equality  which  a  liberal  policy 
cannot  deny  to  foreigners,  and  which  a  wise  government  will  always  desire 
to  secure  to  its  own  citizens." 

'^  In  1841,  while  the  tariff  was  undergoing  re-adjustment,  Forward  ex- 
pressed his  strong  conviction  of  the  impracticability  of  a  home  valuation; 
and  so  did  his  successors  wlienever  discussing  the  subject.  Guthrie  han- 
dled the  subject  very  thoroughly  in  a  letter  addressed  to  the  Speaker  of  the 
House,  written  in  June,  1856.  See  Finance  Report  for  year  ending  June, 
1856,  p.  653. 


490      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1828. 

chusetts  had  nine  ports  of  entry,  of  which  eight  were  open 
for  the  discharge  of  goods  coming  from  every  quarter  of 
the  world.  On  the  coast  of  Maine  were  twelve  ports  ;  yet 
in  only  four  could  goods  purchased  east  of  the  Cape  of 
Good  Hope  be  discharged.  The  Constitution  had  declared 
that  no  preference  should  be  given,  by  any  regulation  of 
commerce  or  revenue,  to  the  ports  of  one  State  over  those 
of  another.  In  each  Atlantic  State  there  was  always  one 
port  open  for  the  commerce  of  the  world,  without  restric- 
tion ;  but  why  were  not  all  ?  In  1838  Congress  attempted 
to  give  similar  privileges  to  all  ports  in  importing  goods. 
The  committee,  who  reported  on  the  subject  declared 
there  was  no  justice  or  propriety  in  retaining  the  distinc- 
tion, yet  many  years  elapsed  before  equality  was  granted. 
Of  course,  the  ports  enjoying  the  largest  liberty,  and 
getting  the  most  trade,  fought  against  the  extension  of 
the  privilege  ;  but  there  was  no  just  reason  whatever  for 
permitting  the  inequality  after  its  discovery.^ 

Very  serious  consequences,  also,  have  arisen  from  a 
wrong  or  imperfect  interpretation  of  our  revenue-laws. 
The  secretary  of  the  treasury  prescribes  how  they  shall 
be  executed,  and  consequently  is  the  first  interpreter  of 
tliem ;  but  an  appeal  lies  from  his  decision  to  the  Federal 
courts,  who  are  the  final  interpreters.  How  often  have 
embarrassments  and  losses  occurred  in  consequence  of 
varying  decisions  at  different  ports  on  the  same  article  of 
merchandise  !  At  one  time  a  deduction  of  five  per  cent 
on  the  invoices  of  broadcloths  for  measurement  was  an 
established  usage  of  trade.  Tliis  usage  was  mentioned  in 
an  instruction  issued  by  the  treasury  department  ^  to  the 
1  House  Eeport  No.  304,  25  Cong.,  secoud  session.        2  ggpt.  9, 1828. 


1829.]  COLLECTION   OF   DUTIES.  491 

collectors  of  the  various  ports.  But  the  instructicn  was 
construed  in  two  ways.  At  some  custom-houses  the  de- 
duction was  made  from  the  measurement ;  at  others,  from 
the  cost.  In  consequence  of  this  dissimilar  application 
of  the  instruction,  different  rates  of  duties  were  imposed. 
Then  the  treasury  department  issued  a  second  instruc- 
tion, announcing  that  the  five-per-cent  reduction  was  on 
the  "  measurement,"  and  not  on  the  price.  A  higher  duty, 
therefore,  was  collected,  than  would  have  been  if  the  de- 
duction had  been  on  the  price  or  cost.  Importers  who  had 
ordered  goods  which  had  not  arrived  previous  to  issuing 
the  second  instruction  were  obliged  to  suffer;  nor  could 
they  get  any  relief.^ 

In  consequence  of  varying  interpretations  of  the  law, 
and  of  changing  the  instructions  of  the  treasury  depart- 
ment, unequal  rates  of  duties  not  infrequently  have  been 
collected  on  similar  articles  at  different  ports.  Whenever 
an  importer  has  paid  the  duty  demanded,  and  has  obtained 
his  goods  and  a  clearance  from  the  custom-house,  by  no 
subsequent  instruction  from  the  secretary  of  the  treasury 
could  he  be  compelled  to  pay  more ;  but,  if  he  had  paid 
an  excess,  that  could  be  refunded.  Very  many  vexations 
and  losses  have  arisen  from  this  cause. 

Not  infrequently  the  officer  of  the  government  has 
doubted  how  to  assess  a  duty.  One  of  the  most  trouble- 
some cases  of  that  kind  in  the  history  of  the  treasury 
department  related  to  the  assessment  of  duties  on  so 
ordinary  a  substance  as  cotton  bagging.  The  opinions  of 
different  appraisers  and  collectors  were  obtained  by  the 
secretary  of  the  treasury  concerning  the    true   mode   of 

1  Annual  Report  of  Sec.  of  Treasury,  December,  1829,  pp.  11,  12. 


492      FINAKCIAL  HISTOEY  OF  THE  UNITED  STATES.       [1833. 

assessing  it.^  To  the  ordinary  reader  it  might  seem  that 
there  could  be  but  little  occasion  for  disputings  about  such 
a  matter ;  but  there  truly  was,  and  the  different  modes  of 
assessing  the  duties  yielded  very  different  and  very  im- 
portant results. 

One  of  the  most  successful  frauds  ever  practised  related 
to  the  importation  of  sugar.  Molasses  and  sirup  bore  a 
lighter  duty  than  sugar ;  and  the  fraud  consisted  in  boil- 
ing cane-juice  nearly  to  the  point  of  crystallization,  or 
else  of  dissolving  clayed  sugar,  white  or  brown,  in  steam 
or  boiling  water,  and  holding  in  solution  the  largest  possi- 
ble quantity  of  sugar.  This  fraud  was  not  only  injurious 
to  the  government,  but  also  to  the  honest  importer. 
When  the  knowledge  of  this  fraud  became  known  to  an 
importing-house  in  New  York,  they  wrote  to  the  secretary 
of  the  treasury,  "  If  this  technical  difference  in  the  mode 
of  preparation  should  be  recognized  as  conclusive,  in  ref- 
erence to  the  new  article,  an  early  notice  to  that  effect  is 
earnestly  solicited,  that  we  may,  by  the  introduction  of  a 
similar  article,  be  enabled  to  withstand  the  ruinous  com- 
petition to  which  we,  in  common  with  the  rest,  shall  oth- 
erwise be  inevitably  subjected."  Thus  awakened  to  their 
duty,  the  officers  of  the  government  finally  stopped  the 
perpetration  of  so  base  and  injurious  a  fraud. 

The  secretary  of  the  treasury  has  been  required  to 
interpret  not  only  the  laws,  but  also  the  treaties,  relating 
to  the  revenues.  In  interpreting  the  latter,  some  very 
difficult  questions  have  arisen.  Sometimes  the  meaning 
of  the  treaty  has  been  clear  enough  to  persons  generally, 

1  See  Senate  Doc.  No.  104,  22  Cong.,  first  session,  especially  Affida-v-it  of 
Importers,  p.  11. 


1842.]  COLLECTION   OF   DUTLES.  493 

though  not  to  the  secretary.  One  of  the  most  note- 
worthy cases  of  this  kind  was  Secretary  Bibb's  coffee  de- 
cision. He  decided  that  coffee  brought  in  Netlierland 
vessels  could  be  admitted  duty  free,  and  ordered  all  duties 
collected  on  it  to  be  refunded  ;  while  that  transported 
in  American  vessels  must  pay  a  duty  of  twenty  per  cent. 
The  decision  caused  much  irritation,  nay,  disgust.  An 
intelligent  foreigner,  writing  from  Rotterdam  about  the 
decision,  remarks,  "  You  see  that  our  Dutchmen  do  not 
believe  that  such  a  liberality  in  favor  of  their  ships,  as  is 
written  about  from  your  side,  can  be  meant  in  earnest, 
as  they  ship  the  coffee  by  American  vessels:  it  would 
indeed  be  a  masterpiece  of  diplomacy,  on  the  part  of  the 
Dutch  negotiator  at  Washington,  if  the  coffee  were  free 
in  Dutch  vessels,  and  not  in  your  own.  But  it  is  looking, 
indeed,  too  absurd,  or  altogether  impossible ;  and  we  ex- 
pect with  you,  that,  if  the  duty  is  returned  on  importa- 
tions by  Dutch  vessels,  your  government  will  not  refuse 
this  advantage  to  their  own  flag."  ^  Though  a  lawyer, 
Bibb's  age  and  tardy  study  of  finance  may  be  pleaded  in 
excuse  for  making  such  a  decision.  Congress,  it  is  true, 
reversed  it ;  but  much  harm  had  been  done,  and  the  pride 
of  the  country  was  lowered  by  the  absurd  and  costly  action 
of  the  secretary  of  the  treasury .^  The  duties  collected 
on  coffee  imported  in  American  vessels  were  refunded  by 

1  7  Niles,  pp.  39,  40,  144. 

2  It  is  worthy  of  remark,  that,  notwithstanding  the  importance  of  the 
secretary's  action  by  which  he  annulled  a  provision  in  the  tariff-Act  of 
1842,  and  directed  a  large  sum  to  be  refunded  to  the  importers,  he  said 
nothing  about  these  things  in  his  annual  report.  Two  reports  were  made 
on  this  subject  which  can  be  profitably  studied,  —  No.  534,  28  Cong.,  first 
session;  and  No.  188,  28  Cong.,  second  session. 


494      FINANCIAL  HISTOEY  OF  THE  UNITED  STATES.      [1843. 

order  of  Congress,  and  thus  the  revenue  from  this  source 
was  wholly  lost.^ 

Bad  enough  was  this  case,  but  not  the  worst.  For 
many  years  certain  duties  had  been  levied  on  Madeira 
wines.  Bibb  found  a  clause  in  the  treaty  with  Portugal 
which  he  declared  admitted  of  a  different  interpretation 
from  that  given  to  it  by  his  predecessors ;  and  accordingly 
he  ordered  a  reduction  of  three-fourths  of  the  duty,  and 
that  the  excess  collected  should  be  refunded.  The  sum 
was  very  large,  and  the  inquiry  sprang  up,  who  ought  to 
receive  it.  Says  Niles,^  "  The  theory  of  some  people  is, 
that  the  consumer  pays  the  duty.  Our  merchants  have 
bought  their  wines  with  the  duty  on,  and  sold  them  to 
the  people  of  this  country  at  prices  accordingly.  The 
importer,  it  is  fair  to  presume,  made  a  fair  profit;  and 
now,  after  the  duty  is  thus  levied,  collected,  and  paid  by 
our  people,  and  the  wine  all  drank  up,  the  people  of  this 
country  are  by  this  decision  called  upon  to  pay  three- 
fourths  as  much  more  out  of  their  treasury  to  refund 
these  said  duties.  Is  it  not  a  hard  case?  The  money 
goes  where?  Into  the  pocket  of  the  importer,  who  has 
already  had  his  profit." 

In  paying  duties,  importers  were  permitted  for  half  a 
century  to  give  their  notes,  whenever  the  sum  exceeded 
fifty  dollars ;  but  the  law  was  often  a  puzzle  in  regard  to 
the  length  of  time  for  which  they  could  be  given  on 
various  kinds  of  imports.  On  those  from  the  West  In- 
dies, except  salt,  or  from  other  places  north  of  the  equa- 

1  Aug.  3,  1846,  29  Cong.,  first  session,  chap.  75.  The  duties  refunded 
included  the  period  between  Aug.  30,  1842,  and  Sept.  11, 1845. 

2  Vol.  Ixvii.  p.  39. 


1833.]  COLLECTION   OF   DUTIES.  495 

tor,  and  along  the  eastern  shore  of  America  or  its  adjacent 
seas  and  other  waters,  the  notes  were  payable,  one-half  in 
six  months,  and  one-half  in  nine  months ;  on  salt,  nine 
months ;  on  wines,  twelve  months ;  on  all  goods  imported 
from  Europe,  except  wines,  salt,  and  teas,  one-third  in 
eight  months,  one-third  in  ten  months,  and  one-third  in 
twelve  months.  On  teas  a  longer  credit  was  given,  which 
caused  a  heavy  loss  to  the  revenue.  Experience  proved, 
too,  that  long  credits  stimulated  speculation,  which  was 
not  less  ruinous  to  the  speculators  themselves  than  inju- 
rious to  the  government. 

In  1820  an  attempt  was  made  to  shorten  credits  on 
importations,  but  the  movement  was  strongly  resisted. 
It  was  regarded  as  "  hostile  to  the  general  interests  of  the 
commercial  community,  and  especially  of  those  young 
merchants  who  were  beginning  their  career  with  more 
enterprise  than  capital."  Its  effect,  if  not  its  object,  was 
declared  to  be  "  to  curtail  the  importation  of  foreign  man- 
ufactures by  diminishing  the  facility  of  importing  them."  ^ 

When  Ingham  was  secretary  of  the  treasury,  he  recom- 
mended that  the  term  of  six,  nine,  and  twelve  months  be 
adopted  as  a  fair  average  of  existing  credits.  In  1832 
the  law  was  so  changed,  that  the  duties  on  wool,  woollens, 
and  all  merchandise  of  which  wool  formed  a  part,  were 
required  to  be  paid  in  cash  without  discount,  or,  at  the 
option  of  the  importer,  be  stored  under  bond  at  his  risk, 
subject  to  the  payment  of  the  customary  storage  and 
charges,  and  to  the  payment  of  interest  from  the  date  of 
importation.  On  all  other  merchandise,  the  duty,  if  not 
exceeding  two  hundred  dollars,  must  be  paid  in  cash  ;  if 

1  See  Austin's  Article,  N.  Am.  Rev.,  vol.  xii.  p.  60. 


496      FIlSrANCIxiL  HISTORY  OF  THE  UNITED  STATES.       [1837. 

exceeding  that  figure,  be  paid  or  secured  in  the  manner 
formerly  required,  —  one-half  payable  in  three  months, 
and  the  balance  in  six.  The  law  also  provided,  that,  when 
any  instalment  of  duties  became  due,  enough  merchan- 
dise should  be  sold  at  public  auction  to  pay  them,  if  this 
was  not  done  by  the  importer. 

These  changes  were  not  easily  effected.  Importers 
were  opposed  to  them,  and  sought  to  modify  them.  They 
preferred  the  old  system  of  getting  credit  from  the  gov- 
ernment rather  than  from  individuals.  Certainly  the  old 
way  was  easier  for  them.  But  an  event  occurred  which 
blasted  forever  all  hope  of  change.  When  Ingham  was 
at  the  head  of  the  treasury  department,  he  strongly  rec- 
ommended that  importers  should  be  required  to  substi- 
tute other  persons  as  principals  on  bonds  given  to  secure 
duties,  whenever  their  own  names  were  affixed  to  similar 
bonds  due  and  unpaid.  Congress  did  not  heed  this  wise 
recommendation  until  the  financial  crash  of  1837  had 
wrecked  the  importers,  and  prevented  them  from  paying 
their  dues  to  the  governijaent.  Suddenly  the  government 
found  itself  on  the  edge  of  bankruptcy.  It  could  not  do 
otherwise  than  extend  the  time  to  importers  to  pay  their 
debts ;  ^  yet  the  government  was  in  sore  need  of  money. 
This  experience  taught  the  government  the  need  of  short- 
ening the  term  of  credit  given  to  importers ;  and  finally 
the  credit  system  was  totally  abolished.  Thereafter  im- 
porters were  required  to  pay  cash  on  receiving  their 
goods. 

The  losses,  sustained  by  the  government  in  this  way, 

1  "Woodbury's  Annual  Report,  December,  1837.    House  Report  No.  196, 
24  Cong.,  second  stusiou. 


1830.]  COLLECTION    OF   DUTIES.  497 

did  not  include  the  duties  remitted  by  Congress  on  goods 
lost  chiefly  by  fire.  For  many  years  this  could  be  done 
only  by  special  legislation  ;  but  in  1854  an  Act  was  passed 
giving  authority  to  the  secretary  of  the  treasury  to  remit 
tliem  in  such  cases.  But  there  were  many  other  instances, 
beside  loss  by  fire,  in  which  duties  were  remitted.  The 
law  requiring  a  duty  to  be  assessed  on  the  article  of  best 
quality  in  the  package  was  not  enforced  in  those  cases 
where  goods  were  detained  by  storms,  and  were  deterio- 
rated in  consequence  of  them. 

Applications  for  remission  from  one  cause  and  another 
have  been  exceedingly  numerous.  Many  of  them  have 
sprung  from  the  operation  of  changes  in  the  law  fixing 
the  rate  of  duty.  The  Act  of  May  29,  1830,  reducing 
the  duties  on  molasses,  tea,  coffee,  and  cocoa,  produced 
some  unexpected  and  embarrassing  consequences.  The 
law  was  to  take  effect  the  30th  of  September  following. 
Some  importers  at  Providence  began  a  voyage  before  the 
enactment  of  the  law ;  and  the  vessel  -arrived  home  a  few 
days  prior  to  the  30th  of  September.  They  knew  that 
jhe  law  had  been  enacted  reducing  the  duty  from  ten  to 
five  cents  a  gallon  on  molasses ;  but  they  had  no  alter- 
native of  keeping  the  molasses  in  the  vessel,  or  storing  it, 
prior  to  payment  of  the  duty.  It  was  necessary  for  them 
to  pay  the  duty ;  wliile  the  importers  of  tea,  coffee,  and 
cocoa,  were  allowed  to  store  their  importations  whenever 
c^irgoes  arrived  between  the  20th  of  May  and  the  time 
when  the  law  was  to  take  effect.  Evidently  there  was  no 
reason  for  subjecting  the  importers  of  molasses  to  such 
peculiar  treatment.  Congress  very  properly  remitted  the 
excess  of  duties  which  had  been  paid. 


498      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1843, 

When  the  tariff  of  1828  was  passed,  miporters  wished 
to  have  the  difference  between  the  old  and  new  rates  of 
duties  refunded  on  all  goods  received  after  the  passage  of 
the  Act,  which  had  been  ordered  previously.  The  answer 
made  to  their  claim  was,  that  the  goods  had  risen  in  the 
market  enough  to  pay  the  increase  in  the  duty.  This  the 
importers  denied :  on  the  other  hand,  they  declared,  that, 
notwithstanding  the  increase  of  duty,  most  of  the  mer- 
chandise imported  had  fetched  lower  prices  than  under 
the  former  tariff.  Said  Samuel  D.  Bradford,  one  of  the 
prominent  petitioners  for  relief,  "  Nothing  can  be  more 
certain  than  that  the  extra  duty  laid  in  1828  came,  nearly 
all  of  it,  out  of  the  pockets  of  the  importers."  ^ 

The  compromise  tariff  Act  of  1833  caused  a  singular 
state  of  uncertainty  in  the  minds  of  the  President  and 
his  cabinet  with  respect  to  what  duties,  if  any,  should  be 
collected  after  1842 ;  and  different  opinions  were  enter- 
tained by  the  attorney-general  and  the  secretary  of  the 
treasury.  The  matter  was  referred  to  Congress ;  and  the 
judiciary  committee  made  a  lengthy  report,  in  which  they 
declared,  that,  by  the  Act  of  1833,  all  duties  after  the 
30th  of  June,  1842,  must  be  assessed,  if  at  all,  on  the  prin- 
ciple of  a  home  valuation,  and  as  they  could  not  thus  be 
assessed,  because  no  legal  regulations  existed,  they  could 
not  be  assessed  at  all.  This  interpretation,  if  correct  and 
followed,  would  have  put  the  government  in  a  sorry 
plight.  The  difficulty  was  remedied  by  the  enactment 
of  the  tariff-law  of  1842.2 

Cases  were  constantly  occurring,  of  hardship,  loss,  and 

1  Ex.  Doc.  No.  13,  22  Cong.,  second  session. 

2  House  Report  No.  943,  27  Cong.,  second  session. 


1849.]  COLLECTION   OF    DUTIES.  499 

suffering,  from  constant  changes  in  the  laws  establishing 
duties,  and  from  the  var3-ing  constructions  given  to  them. 
The  secretaries  usually  have  been  prompt  to  decide,  and 
have  decided  wisely ;  but  the  tariff-laws,  from  an  early 
period,  have  been  so  complicated,  and  the  persons  chosen 
to  execute  them  have  been  changed  so  often,  that  on  rare 
occasions  only  have  they  displayed  very  much  efficiency. 
From  time  to  time  a  fresh  set  of  instructions  has  been 
issued  by  the  treasury  department ;  but,  during  the  greater 
part  of  our  national  history,  the  collection  of  the  revenues 
has  been  cost!}'',  and  in  many  ways  imperfect. 

In  1849  there  was  important  legislation  concerning  the 
money  received  from  duties.  Congress  enacted  that  it 
should  be  immediately  paid  into  the  treasury,  without 
abatement  or  reduction.^ 

The  expense  of  collecting  the  revenue  has  differed  much 
at  various  times  and  places.  The  chief  home  of  com- 
plaint has  been  at  New  York,  where  the  larger  portion  of 
the  revenues  has  been  collected.  The  loosest  and  most 
corrupt  management  of  the  custom-house  was  in  the 
days  of  Hoyt  and  Swartwout,  by  whom  the  government 
sustained  a  direct  loss  of  more  than  a  million  dollars.  A 
very  elaborate  investigation  of  their  management  of  the 
custom-house  developed  one  of  the  most  humiliating  chap- 
ters in  the  history  of  our  government.  Every  depart- 
ment of  the  custom-house  was  saturated  with  corruption. 
All  the  supplies  purchased,  all  the  repairs  made,  all  the 
goods  sold  in  execution  of  the  laws,  collusion  with 
importers,  collusion  with  home  manufacturers,  —  every 
method  which  a  nefarious  ingenuity  could  devise  was 
1  Act,  March  3,  30  Cong.,  second  session,  cbap.  110. 


500      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1829. 

practised  to  rob  the  government,  to  rob  the  importer,  to 
rob  every  one  who  came  within  the  baneful  shadow  of  this 
devoted  body  of  official  criminals.^ 

In  the  beginning,  the  custom-house  officials,  including 
all  the  minor  officers,  were  paid  in  fees  established  by 
Congress.^  Subsequently  several  changes  were  made  in 
the  modes  of  compensation.  It  was  seen  that  the  fee- 
system  operated  unequally,  and  not  in  proportion  to 
services  rendered.  Indeed,  this  inequality  was  so  great, 
that  in  some  cases  an  inspector  received  more  than  twice 
as  much  as  the  collector  of  the  same  district.  Moreover, 
the  fees  were  computed  in  various  ways  at  different  offices, 
and  were  a  constant  source  of  embarrassment  in  the  trans- 
action of  business.  Ingham  recommended  ^  the  abolition 
of  this  mode  of  payment,  and  the  substitution  of  salaries , 
retaining,  however,  the  fees  on  manifests,  clearances, 
entries,  and  permits,  and  also  in  that  part  of  the  service 
where  their  payment  might  be  deemed  essential  to  the 
security  of  the  revenue.  From  these  recommendations 
grew  two  Acts,  which  fixed  the  salaries  of  assistant  ap- 
praisers ;  while  clerks,  and  all  other  persons  employed  in 
the  appraisers'  office,  were  to  be  appointed  by  the  prin- 
cipal appraisers,  and  their  number  and  compensation  de- 
termined by  the  secretary  of  the  treasury.  The  duties 
having  declined  under  the  tariff-Act  of  1832,  the    com- 

-    i  Poindexter's  Report,  No.  669,  27  Cong.,  second  session. 

'^  A  practice  for  a  long  time  prevailed  of  allowing  the  compensation  of 
clerks  employed  in  the  custom-houses  to  be  paid  out  of  the  revenue,  when 
the  fees  were  not  deemed  adequate  to  obtain  the  necessary  number;  but 
when  Spencer  was  secretary  of  the  treasury  he  abolished  the  practice.  — 
Annual  Report,  December,  1843. 

8  Annual  Treas.  Report,  December,  1829. 


1841.]  COLLECTION   OF   DUTIES.  501 

pensation  shrank  to  a  small  figure,  and  it  was  increased. 
The  law  had  provided  that  all  the  fees  accruing  to  any 
officer,  in  addition  to  his  salary,  beyond  a  certain  sum, 
should  go  to  the  government.  No  collector  could  retain, 
in  fees,  over  $4,000,  a  naval  officer  'if3,000,  and  a  surveyor 
'$2,500.^  But  in  1841  the  sums  were  somewhat  increased, 
and  made  permanent ;  the  law  declaring  ''  that  no  col- 
lector should,  on  any  pretence  whatsoever,  thereafter 
receive,  hold,  or  retain  for  himself,  in  the  aggregate,  more 
than  !|6,000  per  year,  including  all  commissions  for  duties, 
and  all  fees  for  storage,  emoluments,  or  any  other  com- 
missions or  salaries,  which  are  now  allowed  and  limited 
by  law."  The  salary  of  the  naval  officer  was  fixed  at 
15,000,  and  that  of  the  surveyor  at  |4,500. 

Long;  ago  was  shown  the  uselessness  of  the  naval  office. 
The  number  has  been  somewhat  reduced,  but  there  is  no 
reason  why  one  should  be  retained  at  any  port.  The 
office  is  simply  revisory ;  and,  if  competent  persons  are 
put  into  the  collectors'  offices,  no  mistakes  would  occur, 
and  a  naval  officer  would  have  nothing  to  revise. 

1  In  1836,  when  the  expense  of  collecting  duties  was  under  considera- 
tion, there  was  an  effort  made  to  abolish  the  naval  oifice;  but  the  commit- 
tee to  whom  the  matter  had  been  referred  made  no  recommendation  in 
their  report.  The  naval  officers  at  Norfolk  and  Portsmouth,  who  feared 
that  their  offices  might  be  abolished,  wrote  letters  to  the  secretary  con- 
cerning their  duties,  from  whi(;h  a  very  good  idea  can  be  gained  what  they 
were.  —  No.  480,  24  Cong.,  first  session. 


502      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1818. 


CHAPTER  XL 

COINAGE. 

For  several  years  after  establishing  the  mint,  and  regu- 
lating the  coinage,  the  market-value  of  gold  and  silver 
abroad  and  at  home  corresponded  with  the  mint  valua- 
tion, so  that  both  metals  circulated  at  the  legal  ratio. 
Neither  one  was  worth  for  exportation  more  than  the 
other :  an  eagle  and  ten  dollars  were  convertible  terms, 
and  either  was  given  by  the  banks  in  exchange  for  notes 
at  the  option  of  the  holder. 

But  before  1818,  when  the  question  arose  of  resuming 
cash  payments  b}^  the  Bank  of  England,  did  the  fact 
clearly  appear  in  this  country  that  a  change  had  occurred 
in  the  relative  value  of  gold  and  silver.  An  ounce  of 
gold,  from  the  operation  of  that  or  other  causes,  was 
worth  more  than  fifteen  ounces  of  silver.  When  remit- 
tances of  coin,  therefore,  were  made  from  the  United 
States  to  England,  gold  was  preferred  to  silver  for  the 
simple  reason  that  a  gold  eagle,  which  could  be  obtained 
here  for  ten  dollars,  in  London  could  be  converted  into 
more  pounds,  shillings,  and  pence,  than  ten  silver  dollars.^ 

1  See  papers  by  Condy  Raguct  in  National  Gazette,  1820;  on  tlie  Rela- 
tive Value  of  Gold  and  Silver,  Ibid.,  Jan.  26,  1822;  History  of  the  Gold 
Coinage  of  the  U.  S.,  Phil.  Examiner,  Oct.  15,  1834.  The  last  two  papers 
are  republished  in  the  appendix  to  Raguet's  Currency  and  Banking. 


1819.]  COINAGE.  503 

The  first  remedy  proposed  for  this  state  of  things  was 
the  one  which  Dallas  had  recommended  on  a  former  occa- 
sion, —  the  prohibition  of  the  export  of  coins  by  legisla- 
tion. This  remedy  was  finally  abandoned  in  1819,  after 
tlie  report  of  Mr.  Talbot  from  the  committee  of  finance. 
"  Of  the  inefficiency,  if  not  impotence,"  he  says,  "  of  legis- 
lative provisions  to  prevent  the  escape  of  the  precious 
metals  beyond  the  territorial  limits  of  the  government, 
the  history  of  all  countries  in  which  the  power  of  legisla- 
tion has  been  thus  exercised  bears  testimony.  .  .  .  Indeed, 
no  error  seems  more  entirely  renounced  and  exploded,  if 
not  by  the  practice  of  all  nations,  at  least  in  the  disquisi- 
tions of  political  economists,  than  that  which  supposed 
that  an  accumulation  of  the  precious  metals  could  be  pro- 
duced in  the  dominions  of  one  sovereign  by  regulations 
prohibiting  their  exportation  to  those  of  any  other."  ^ 
Since  that  time  no  one  has  thought  of  stopping  the  out- 
ward flow  of  the  precious  metals  by  legislative  inhibition. 

Of  the  two  metals,  it  was  apparent,  even  before  the  war 
of  1812,  that  gold  was  more  desirable  for  exportation  than 
silver,  and  that  American  silver  coins  were  preferable 
to  foreign  silver  ones  because  the  former  were  heavier. 
When  the  United-States  bank  contracted  with  Baring  and 
Reid,  in  1819,  for  a  supply  of  specie,  they  were  to  fur- 
nish, if  practicable,  gold  and  silver  in  equal  amounts, 
determined  by  the  American  valuation  of  one  to  fifteen. 
More  than  two  million  dollars  of  silver  were  supplied, 
but  not  an  ounce  of  gold.^  The  legal  valuation  of  gold 
did  not  correspond  with  that  of  the  market.     Its  valua- 

1  Senate  Report,  Jan.  25,  1819,  3  Finance,  p.  393. 

2  Lowndes's  Report,  Jan.  26,  1819,  3  Finance,  p.  398. 


504      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1819. 

tion  was  too  low  compared  with  silver,  and  consequently 
gold  fled  to  foreign  countries.  Year  after  yeav  the  cur- 
rent set  away  from  our  shore.  Congress  saw  the  move- 
ment, but  did  nothing  to  prevent  it. 

The  same  thing  happened  with  respect  to  silver.  Of 
the  foreign  silver  coins,  the  Spanish  and  Mexican  coins 
especially  were  lighter  than  the  corresponding  American 
ones,  because  they  had  circulated  many  years.  Of  course, 
the  more  the  coins  were  employed,  the  lighter  they  grew ; 
and  thus  the  evil  of  using  them  increased.  What  should 
be  done  ?  The  solution  of  the  question  became  momen- 
tous and  perplexing. 

The  exportation  of  gold  was  prevented  somewhat  by 
the  rate  of  exchange.  Gallatin,  in  his  "  Considerations  on 
the  Currency  and  Banking  System,"  which  appeared  in 
1821,1  said  that  four  dollars  and  fifty-six  cents  of  Ameri- 
can gold  coin  at  that  time  contained  a  quantity  of  gold 
equal  to  that  in  a  sovereign.  It  was  exported  to  England 
as  soon  as  the  exchange  rose  to  four  dollars  and  sixty-one 
cents  per  pound  sterling,  which  was  nearly  three  and 
three-fourths  per  cent  above  the  nominal,  and  three  per 
cent  below  the  true  par,  calculating  this  at  the  rates  of 
fifteen  and  six-tenths  to  one,  or  four  dollars  and  seventy- 
five  cents  per  pound  sterling.  With  the  exception  of  the 
year  of  the  embargo,  the  exchange  on  London  from  1795 
to  1821  never  rose  to  the  nominal  par ;  or,  in  other  words, 
during  that  entire  period,  the  exchange  was  always  favora- 
ble to  the  United  States,  never  rising  higher  than  two  per 
cent  below  the  true  par.  This  is  the  reason  why  our  gold 
coins,  though  under-rated,  were  not  exported  till  the  year 

1  "Writings,  vol.  iii.  p.  304. 


1819.]  COINAGE.  505 

1821,  when  the  exchange  rose  from  four  dollars  and  sixty 
cents  to  four  dollars  and  ninety-eight  cents  per  pound 
sterling.  Then  their  exportation  began ;  and  a  premium 
of  one-half  per  cent  for  them  was  given  when  the  pre- 
mium on  the  nominal  par  of  exchange  was  five  per  cent, 
corresponding  to  an  exchange  of  nearly  four  dollars  and 
sixty-seven  cents  per  pound  sterling.  From  that  period 
to  the  end  of  the  year  1829,  the  exchanges,  with  a  few 
short  exceptions,  were  unfavorable  to  the  United  States, 
and  for  a  long  time  afterward.  "  It  is  perfectly  clear," 
concludes  Gallatin,  "  whilst  our  gold  coins  are  thus  under- 
rated, they  will  be  exported  whenever  the  exchange  rises 
above  four  dollars  and  sixty-one  cents  to  four  dollars  and 
sixty-four  cents  per  pound  sterling ;  and  that,  if  rated 
according  to  the  true  or  approximate  relative  value  of 
gold  to  silver,  they  would  not  be  exported  to  England 
till  the  exchange  kad  risen  to  at  least  four  dollars  and 
eighty  cents  to  four  dollars  and  eighty-three  cents,  or 
more  than  one  per  cent  above  the  true  par." 

In  1819  a  committee  was  appointed  by  the  House  to 
investigate  the  subject.  Mr.  Lowndes  made  a  report, 
in  which  he  set  forth  the  imperfections  of  the  present 
system,  and  the  need  of  providing  a  remedy.  He  recom- 
mended passing  a  bill,  of  which  the  following  is  an  out- 
line :  — 

There  should  be  retained  by  the  mint  as  seigniorage, 
from  every  dollar  coined,  14^^^^^  grains  of  silver,  which 
would  reduce  the  weight  of  the  dollar  to  356^4^"^  of  fine 
silver,  and  to  399^^^^  grains  of  standard  silver.  There 
should  be  the  same  proportion  in  small  coins. 

The  bill  further  provided  that  the  eagle  should  be  re- 


506      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [18»1. 

duced  from  247^  grains  of  fine  gold,  or  270  grains  of 
standard  gold,  to  237^9^8^  grains  of  fine  gold,  or  259^^-^ 
grains  of  standard  gold,  and  small  coins  in  proportion. 
No  deduction  was  to  be  made  for  seigniorage,  but  the 
expense  of  refining  all  gold  and  silver  below  the  mint 
standard  was  to  be  paid  by  the  owner. 

Just  before  making  this  report,  Robert  Patterson,  the 
director  of  the  mint,  stated  in  a  communication  to  Craw- 
ford, the  secretary  of  the  treasury,  that,  "considering 
the  expense  of  the  importation  of  gold  into  the  United 
States,  he  thought  that  our  government  would  be  justifi- 
able in  adding  ten  per  cent  to  the  present  relative  value 
of  gold.  This  would  hold  out  a  powerful  and  effectual 
motive  for  the  iinportation  of  gold  into  the  United  States, 
and,  at  the  same  time,  act  as  a  powerful  barrier  against 
its  exportation."  ^  Had  this  been  done,  every  silver  dollar 
and  half-dollar  would  have  been  expelled  from  the  country 
within  a  year. 

Two  years  afterward  another  report  was  made  by  Mr. 
Whitman.^  He  agreed  with  the  recommendations  of  Mr. 
Lowndes  in  respect  of  gold  coins,  but  was  silent  concern- 
ing the  silver  ones.  The  proposed  reduction  of  gold  coins 
was  four  pei  cent,  which  at  that  time  expressed  the 
change  in  the  relative  value  of  the  two  metals.  This  bill, 
like  its  predecessors,  was  permitted  to  die  silently.  The 
exportation  of  gold  coins  continued  until  early  in  1822, 
when  not  one  was  to  be  seen  in  circulation,  although  six 
million  dollars  had  been  coined  at  the  mint.     Had  Whit- 

1  Crawford's  Coinmnnication  to  the  Senate,  containing  Patterson's  Let- 
ter, Jan.  25,  181S,  3  Finance,  p.  395. 
^  Feb  2, 1821  3  Finance,  p.  660. 


1830.]  COINAGE.  507 

man's  recommendation  been  adopted,  it  would  have 
proved  inoperative ;  for  at  a  subsequent  period  there  was 
a  greater  change  than  four  per  cent  in  the  relative  value 
of  gold  and  silver,  and  consequently  the  new  coins  would 
have  been  carried  away. 

Congress,  though  neglecting  or  not  daring  to  legislate, 
discussed  the  subject  for  the  next  fifteen  years  with  more 
wisdom  than  is  usually  shown  in  such  matters.  Senator 
Sanford  of  New  York  made  a  report,^  in  which  he  recom- 
mended, among  other  things,  that  no  foreign  coin  should 
form  a  legal  tender,  nor  any  gold  or  silver  coins  which 
had  lost  one-twenty-fifth  part  of  their  original  weight.  He 
maintained  that  gold  coins  had  been  exported  because 
they  were  rated  too  low,  and  American  silver  coins  be- 
cause they  were  worth  more  than  the  foreign  ones  in 
circulation. 

In  1830  Mr.  Ingham,^  the  secretary  of  the  treasury, 
made  a  special  report,  which  was  more  important,  perhaps, 
than  any  other  since  Hamilton's,  and  is  worthy  of  ex- 
tended consideration.  Investigation  and  discussion  in 
previous  reports  had  related  principally  to  the  true  ratio 
between  gold  and  silver,  and  how  a  correspondence  be- 
tween this  and  the  legal  or  mint  ratio  could  be  maintained. 
It  had  been  assumed,  that  gold  had  disappeared  because 
its  valuation  was  too  low.  Mr.  Ingham,  however,  attacked 
this  assumption.  He  declared  that  at  no  time  since  the 
general  introduction  of  bank-paper  had  gold  been  found 
in  general   circulation.^     Passing  over  the   causes  which 

1  Senate  Doc.  No.  19,  21  Cong.,  first  session. 

2  May  4,  1830,  Ex.  Doc.  No.  117,  21  Cong.,  first  session. 
*  See  John  White's  letter  in  Ingham's  Report,  p.  108. 


508        FINANCIAL    HISTORY    OF    THE    UNITED    STATES.     [1830. 

prevented  the  ratio  of  gold  and  silver  in  Europe  from 
affecting  the  price  of  gold  in  the  United  States  prior  to 
1820,  he  said  the  failure  of  gold  to  circulate  in  the  United 
States,  at  a  time  when  it  commanded  no  premium,  proved 
that  other  causes  than  an  erroneous  mint  regulation  had 
excluded  it  from  circulation.  Bank-paper  superseded  the 
use  of  gold  for  large  payments ;  and,  whether  preferred  or 
not  by  the  people,  the  banking  system  would  probably 
exclude  the  circulation  of  both  gold  and  silver  to  the 
whole  extent  that  bank-paper  could  be  made  a  substitute 
for  them.  Mr.  Lowndes,  in  his  report  of  1819,  stated 
that  gold  could  hardly  be  considered  as  having  formed  a 
material  part  of  our  monetary  circulation  for  the  preceding 
twenty-six  years,  though  he  wrongly  attributed  its  disap- 
pearance to  the  erroneous  ratio  established  by  law.  Mr. 
Ingham,  therefore,  did  not  believe  that,  even  if  an  exact 
adjustment  of  their  relative  values  were  made,  gold  would 
re-appear. 

Having  shown  that  the  scarcity  of  gold  was  not  occa- 
sioned entirely  by  the  lack  of  correspondence  between  the 
market  and  the  legal  valuation,  Mr.  Ingham  said  it  was 
remarkable  that  governments  had  so  tenaciously  perse- 
vered in  the  effort  to  maintain  standards  of  different 
materials,  whose  relation  was  so  constantly  changing,  and 
more  especially  when  a  simple  and  certain  remedy  was 
within  the  reach  of  all.  This  remedy  was  "  to  be  found 
in  the  establishment  of  one  standard  measure  of  property 
only."     For  that  standard  he  recommended  silver. 

Yet  he  did  not  propose  to  banish  the  use  of  gold  as  a 
monetary  instrument.  The  mode  of  using  it,  however, 
was  more  clearly  explained  by  John  White,  cashier  of  the 


1834.]  COINAGE.  509 

Bank  of  the  United  States  at  Baltimore,  from  whom  the 
secretary  had  obtained  many  valuable  facts  and  opinions. 
In  the  event  of  selecting  silver  as  the  sole  standard,  wrote 
Mr.  White,  gold  would  continue  to  be  equally  serviceable 
in  liquidating  State  or  national  balances ;  and  its  intrinsic 
and  well-ascertained  value  abundantly  secured  its  cur- 
rency and  availability,  like  an  undoubted  bill  of  exchange, 
in  effecting  large  payments.  Nor  should  it  be  altogether 
excluded  from  the  mint,  or  from  general  circulation.^ 

In  1831  appeared  a  report  from  a  special  committee, 
which  was  the  fruit  of  considerable  study .^  The  princi- 
pal recommendation  of  the  committee  was  a  change  of 
the  ratio  between  gold  and  silver.  The  ratio  proposed 
was  1  of  gold  to  15j^q2q5q  of  silver.  But  the  time  was  not 
yet  for  changing  the  standard. 

At  length,  in  1834,  Congress  changed  the  valuation  of 
gold  coins.^  The  eagle  was  fixed  at  232  grains  of  pure 
gold,  and  258  grains  of  standard  gold,  and  the  smaller 
gold  coins  in  proportion.  The  Act  further  provided  that 
these  coins  should  be  received  in  all  payments  when  of 
full  weight,  determined  by  their  respective  values ;  and, 
when  they  were  not  of  full  weight,  there  should  be  a 
corresponding  diminution  in  their  legal  values.* 

1  Ingham's  Report,  p.  73. 

2  Feb.  22, 1831,  No.  95,  21  Cong.,  second  session.  See  another  report  by 
the  same  committee,  March  17,  1832,  No.  420,  22  Cong.,  first  session. 

3  Act,  June  28,  IS'.M,  23  Cong  ,  first  session,  chap.  95. 

•*  See  Reports,  No.  278,  23  Cong.,  first  session,  and  No.  513,  24  Cong.,  first 
session.  This  legislation  was  not  pleasing  to  every  one.  Said  William 
Reid,  in  a  lecture  on  Money  and  Currency,  in  July,  18.34,  "To  show  the 
reckless  disregard  of  all  the  usxial  means  of  acquiring  information  of  which 
the  authors  of  this  practical  blunder  in  legislation  have  been  guilty,  and 
their  own  ignorance  of  the  subject,  the  seigniorage,  or  charge  for  coinage. 


510      FINANCIAL  HISTOEY  OF  THE  UNITED  STATES.       [1834, 

The  standard  fineness  of  these  coins  was  899^2^2„5_^  whieli 
was  retained  for  three  years ;  then  it  was  changed  to 
Yiy^Q-  But  the  weights  of  the  gold  coins  were  not  altered 
by  this  Act.  All  minted  after  July  31,  1834,  were  a  legal 
tender  at  their  nominal  value.^ 

Thus  a  fifteen-years'  discussion  had  passed  ere  Con- 
gress ventured  to  legislate  on  this  important  and  delicate 
matter.  That  body  evidently  tried  to  do  the  best  thing 
possible ;  but  the  futilit}^  of  their  work  showed  more 
clearly  than  ever  the  great  difficulty  of  establishing  a 
legal  valuation  of  the  two  metals,  which  should  always 
correspond  with  their  valuation  in  the  chief  markets  of 
the  world. 

This  change  in  the  valuation  of  gold,  though  very 
slight,  was  tainted,  so  some  j)ersons  thought,  with  dishon- 
esty. William  Reid  remarked,  in  a  lecture  delivered  at 
Philadelphia  on  this  subject,  "It  will,  perhaps,  be  said 
by  the  supporters  of  the  measure,  however,  that  the 
alteration  made  in  the  standard  of  money  is  so  extremely 
trifling,  that  it  will  excite  hardly  any  attention :  let  them 
not  so  delude  themselves,  or  lay  this  flattering  unction  to 
their  souls.  If  the  degradation  in  the  standard  had  been 
only  one-third  of  what  it  really  is,  it  would  not  have 
escaped  detection  and  animadversion.  Nay,  if  it  had 
only  appeared  to  make  a  change  in  the  standard,  although 
the  change  was  so  small  that  it  could  not  have  been  com- 
computed,  it  would  be   severely  censured.     This  is  one 

of  silver  as  well  as  gold,  is  declared  by  this  bill  to  be  the  same,  or  one-half 
per  cent.  Now,  the  expense  of  coining  silver  is  in  reality  at  least  three  times 
greater  than  that  of  coining  gold."  —  p.  28. 

1  Act,  Jan.  18,  1837,  24  Cong.,  second  session,  chap.  3. 


1849.]  COINAGE.  511 

of  those  things  in  which  even  the  appearance  of  evil  is  to 
be  avoided.'"  ^  He  feared  that  this  would  prove  only 
a  prelude  to  greater  alterations  in  the  value  of  the  coins 
in  the  wrong  direction,  from  which  the  nations  of  the  Old 
World  had  suffered  :  but  his  fears  were  never  realized, 
nor  did  these  amendments  to  the  coinage  laws  have  any 
effect  on  prices. 

The  new  valuation  soon  exposed  the  fact  that  the  valu- 
ation of  silver  was  too  low :  consequently  it  disappeared 
from  circulation.  Later,  the  golden  riches  of  California 
and  Australia  were  discovered.  The  effect  of  these  dis- 
coveries was  to  diminish  the  value  of  gold  ;  and,  of  course, 
silver  shrank  still  further  out  of  sight.  So  completely 
were  the  silver  coins  expelled  from  the  channels  of  cir- 
culation, especially  those  of  small  denomination,  that  in 
1853  there  was  a  new  adjustment  of  the  coinage,  and  the 
weight  of  the  silver  coins  of  less  denomination  than  the 
dollar  was  reduced  enough  to  insure  their  retention  in 
circulation  ;  but  their  legal-tender  function  was  limited  to 
five  dollars. 

In  1849  Congress  authorized  the  coinage  of  gold  dol- 
lars.2    The  expediency  of  coining  them  had  been  discussed 

1  Lect.  on  Money  and  Currency,  p.  29. 

2  March  3,  30  Cong.,  second  session,  chap.  109.  The  reason  for  the 
small  gold  coinage,  it  was  supposed  for  many  years,  "  was  the  wrong 
ratio  between  that  metal  and  silver;  and  this  was  true,  but  not  the  main 
reason.  The  main  reason  was,  that,  when  kegs  of  sovereigns  arrived  in 
New  York,  they  were  placed  in  bank,  and  the  paper  money  of  the  institu- 
tion issued  in  exchange.  The  sovereigns  remained  unpacked  for  months, 
and  then  on  the  turn  of  the  exchanges,  returned  whence  they  came,  the 
bank  simply  withdrawing  from  circulation  the  notes  it  had  uttered  when 
the  specie  came  in.  Thus  the  New-York  banks  were,  in  fact,  the  mint: 
they  coined  paper  money  to  take  the  place  of  coin.      Tliere  was  uotliing 


512      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1834. 

for  several  years.  Committees  had  considered  the  subject, 
and  reported  unfavorably.  Patterson,  the  director  of  the 
mint,  contended  that  such  a  coin  would  be  "  too  diminu- 
tive." Another  objection  raised  by  him  was,  that  the 
dollar  was  already  represented  in  a  silver  coin.  A  brief 
employment  of  gold  dollars  convinced  all  of  the  soundness 
of  Patterson's  reasons  against  coining  them.^ 

In  1834  it  was  declared,  that,  for  all  standard  gold  and 
silver  deposited  for  coinage,  payment  should  be  made  in 
coin  within  forty  days  from  the  making  of  the  deposit ; 
but  the  depositor  could  receive  payment  within  five  days, 
if  he  were  willing  to  relinquish  one-half  of  one  per  cent 

to  induce  the  owner  of  the  gold  to  incur  the  delay  and  expense  of  sending 
it  to  Philadelphia:  on  the  contrary,  that  process  would  have  made  the 
pieces  so  much  less  valuable  for  export,  and,  by  going  into  circulation, 
would  have  operated  against  the  issues  of  the  banks. 

"  The  largest  proportion  of  the  government  revenue  was  received  at  the 
New-York  custom-house;  but  the  government  financiers  were  so  connected 
with  banks,  that  specie  was  by  no  means  important  to  the  transaction.  If 
the  importer  paid  his  duties  in  specie,  it  was  in  foreign  coin,  taken  at  a 
rate  fixed  by  law,  and  then  by  the  custom-house  turned  over  to  a  bank, 
which  packed  them  up  for  re-exportation  as  soon  as  the  exchanges  favored 
the  operation.  Thus  the  mode  by  which  Congress  carried  out  its  power  of 
regialating  the  currency,  was  to  place  the  mint  out  of  the  reach  of  volun- 
tary depositors,  and  by  taking  foreign  coins  as  tender,  and  allowing  the 
people  to  be  supplied  with  bank-notes  for  circulation,  effectually  to  destroy 
all  motive  for  increasing  the  national  currency.  By  these  means  the  small 
channels  of  circulation  were  entirely  occupied  with  the  Spanish  fractions, 
—  sixteenths,  eighths,  fifths,  or  pi.stareens  and  quarters,  —  while  dollars  and 
upwards  were  supplied  by  bank-notes;  gold  being  rarely  seen,  and  used 
only  as  an  agent  in  the  foreign  exchanges.  In  the  first  forty-three  years  of 
the  mint,  only  Sll, 825,81)0  of  gold  were  coined  in  the  United  States;  that  is 
to  say,  a  sum  equal  to  the  coinage  of  the  last  two  months."  — 1852,  Dem. 
Rev.,  vol.  XXX.  p.  172. 

1  Patterson's  Letter  to  McKay,  Chairman  of  Com.  of  Ways  and  Means, 
Jan.  20,  1844.    No.  346,  28  Cong.,  first  session. 


1818.]  COINAGE.  513 

of  liis  deposit.  All  gold  coins  minted  prior  to  July  1, 
1834,  were  receivable  at  the  rate  of  94^%  cents  per  penny- 
weight.^ 

At  a  later  period  the  expense  of  coining  to  depositors 
was  much  larger  than  it  ought  to  have  been.  A  mercan- 
tile house  in  the  city  of  New  York,  whose  receipts  of  Cal- 
ifornia gold  for  a  year  were  $1,381,875,  paid  one-quarter 
per  cent  for  sending  the  same  to  the  mint.  Then  there 
were  delays  in  coinage.  On  the  11th  of  February,  $111,- 
838  in  bullion  were  deposited  at  the  mint,  which  was  not 
coined  until  the  5th  of  April,  —  a  delay  of  fifty-two  days. 
The  expense  of  sending  this  consignment  was  nearly  one 
and  a  quarter  per  cent,  or  $1,410.  To  lessen  the  expense 
of  coinage,  an  effort  was  made  to  establish  a  branch  mint 
at  the  city  of  New  York.  This  was  strongly  urged  by 
Walker,  when  secretary  of  the  treasury.  He  asserted, 
that,  if  a  mint  had  existed  there,  several  millions  more 
would  have  been  annually  coined  during  his  four  years 
of  service  as  chief  of  the  treasury  department.  "  This," 
he  says,  "  is  proved  by  the  fact  that  most  of  the  foreign 
coin  sent  from  New  York  and  other  points  to  Philadelphia 
for  coinage  has  been  that  portion  which  was  received  for 
government  dues,  and  transferred  mainly  —  not  by  the  peo- 
ple or  the  merchants,  but  by  order  of  the  treasury  depart- 
ment —  from  the  several  government  depositories  ;  and 
but  little  coin,  comparatively,  has  gone  from  New  York, 
transmitted  voluntarily  by  individuals  for  recoinage,  to 
Philadelphia."  Persons,  he  further  asserted,  would  not,  to 
any  great  extent,  subject  themselves  to  the  risk,  expense, 
and  delay  of  the  process ;  whereas  the  entire  amount  of 

1  Act,  June  28,  1834. 


514      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1851. 

coin  and  bullion,  amounting  to  many  million  dollars,  that 
flowed  into  New  York  by  the  operations  of  commerce  and 
emigration,  would  be  changed  into  American  coin  if  a 
mint  existed  in  that  city.^ 

For  the  purpose  of  enabling  the  mint  to  make  returns 
to  depositors  with  as  little  delay  as  possible,  the  secretary 
of  the  treasury  was  directed  to  keep  there,  when  the  con- 
dition of  the  treasury  would  admit  of  so  doing,  one  million 
dollars,  from  which  the  depositors  of  bullion  could  be  paid 
as  soon  as  practicable  after  the  value  of  their  deposits  was 
ascertained.  But  when  Corwin  was  secretary,  he  recom- 
mended the  issue  of  mint  certificates,  which  should  be 
receivable  for  all  debts  due  to  the  government,  and  the 
withdrawal  of  the  bullion  fund,  which  was  maintained  at 
an  annual  expense  of  more  than  three  hundred  thousand 
dollars.  This,  he  declared,  might  be  saved  in  interest  by 
applying  that  fund  to  the  redemption  of  the  public  debt. 
He  maintained,  too,  that  great  advantages  would  accrue 
to  the  business  community,  and  to  the  general  trade  of 
the  country,  by  throwing  the  amount  of  that  fund  into 
circulation,  instead  of  keei)ing  it  constantly  as  dead  capital 
in  the  vaults  of  the  mint.^ 

The  plan  recommended  by  Corwin  was  to  issue  cer- 
tificates, under  the  authority  of  Congress,  to  the  amount 
of  six  or  seven  million  dollars,  in  sums  of  a  hundred, 
five  hundred,  a  thousand,  five  thousand,  and  ten  thou- 
sand dollars,  payable  to  the  order  of  the  treasurer  of 
the  mint,  and  to  distribute  them  in  due  proportion  to 

1  Walker's  Annual  Rpport,  1848.  Phoenix's  Report,  Sept.  14,  1850.  No. 
490,  31  Cong.,  first  session. 

2  Annual  Report,  December,  1851. 


l8.-,8.]  COINAGE.  515 

the  mint  and  its  branches,  and  as  soon  as  any  deposit 
of  gold  bullion  was  assayed,  and  its  value  ascertained, 
to  pay  the  amount  to  the  depositor  in  these  certificates. 
Receivable  in  payment  of  all  dues  to  the  United  States, 
it  was  expected  that  they  would  always  command  their 
full  par  value,  and  would  be  received  on  deposit  as  cash 
by  the  banks,  and  held  by  them  for  paying  duties  or 
other  public  obligations  ;  but  Congress  did  not  consider 
the  recommendation.  With  still  less  favor  was  the  sub- 
sequent recommendation  of  the  director  of  the  mint  re- 
ceived, that  mint  certificates  should  be  issued  to  depositors 
for  sums  so  small  as  fifty  dolfars,  payable  to  bearer.  Cobb, 
a  later  secretary  of  the  treasury,  condemned  the  recom- 
mendation in  his  annual  report.^ 

To  increase  the  coinage  of  the  precious  metals,  branch- 
mints  were  established  at  New  Orleans,  at  Charlotte, 
N.C.,  where  a  considerable  quantity  of  gold  was  annually 
obtained,  and  also  at  Dahlonega,  Ga.  It  was  not  claimed 
that  the  mint  at  Philadelphia  could  not  coin  all  the  gold 
and  silver  brought  there,  but  that,  by  erecting  other  mints 
at  places  more  convenient  to  the  owners  of  bullion,  the 
business  of  coining  would  increase.  Congress  never  au- 
thorized a  more  useless  expense.  This  was  clearly  proved 
in  due  time ;  but  the  plea  for  creating  those  establish- 
ments was  known  to  be  shallow  in  the  beginning.  The 
officers  wlio  managed  them  led  an  easy  life,  and  doubt- 
less this  was  intended  by  Congress.  In  truth,  these 
institutions  were  created  less  to  supply  a  public  need  than 
to  make  places  for  needy  politicians.  The  chief  object 
of  those  who  caused  this  unjustifiable  extravagance  was 

1  Annual  Report,  December,  1858. 


516      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [18.-0. 

attained,  if  we  believe  the  report  of  a  committee  who 
investigated  the  history  of  these  branches  in  1842.  Espe- 
cially with  reference  to  the  branch  at  Charlotte,  they 
say,  "  Judging  from  the  amount  of  money  expended  for 
trees,  flowers,  and  shrubbery,  the  labor  done  in  the  yard, 
the  furniture  purchased,  and  the  baths  erected,  the  com- 
mittee infer,  that,  under  the  superintendence  of  the  re- 
fined and  tasteful  gentlemen  who  were  put  in  charge  of 
this  branch  mint,  it  lacked  nothing  that  could  gratify 
the  eye,  contribute  to  health,  soften  the  body,  and  insure 
repose."  ^  The  committee  wisely  recommended  the  aboli- 
tion of  all  the  branches.  Several  years  afterward  another 
branch  was  established  at  San  Francisco,  but  this  has 
served  a  useful  purpose. 

With  respect  to  the  money  of  foreign  countries.  Con- 
gress enacted  in  June,  1834,^  that,  after  the  end  of  the 
following  month,  the  gold  coins  of  various  countries  should 
pass  current,  "  and  be  receivable  in  all  payments  by  weight, 
for  the  payment  of  all  debts  and  demands,"  at  rates  then 
established.  In  1857  it  was  enacted  that  Mexican  dollars 
should  thereafter  be  received  at  a  reduced  rate,  and,  when 
reaching  the  mint,  should  be  recoined.  The  former  laws, 
making  foreign  coin  a  legal  tender,  were  repealed.^ 

From  the  opening  of  the  mint  to  the  1st  of  January, 
1850,  -1128,813,558  were  coined.  The  value  of  the  gold 
coined  and  recoined  at  Philadelphia  was  $63,470,612,  —  an 
annual  average  of  11,113,520.  In  1847  specie  was  sent 
from  Europe,  amounting  to  $24,153,000,  to  pay  chiefly  for 

1  Report  No.  462,  27  Cong.,  second  session. 

2  June  28,  23  Cong.,  first  session,  chap.  96. 

«  Act,  Feb.  21, 1857,  24  Cong.,  third  session,  chap.  56. 


1850.]  COINAGE.  617 

provisions.^  The  expense  to  the  government  for  coinage 
at  Philadelphia  was  2^^^^^  per  cent ;  at  New  Orleans,  Q^-^q  ; 
in  North  Carolina,  9  per  cent ;  and  in  Georgia,  9^^^  per 
cent.2  Prior  to  the  gold  discoveries  in  California,  the 
mint  had  been  chiefly  supplied  with  foreign  coin  by  the 
government.  The  law  establishing  the  mint  required  this 
to  be  done.  Some  bullion  was  received  from  other 
sources.  Otherwise,  remarked  a  committee  of  the  House 
in  1850,  "the  coinage  of  the  mint  would  have  been  re- 
duced to  a  comparatively  small  amount."  ^ 

1  During  the  year  ending  Sept.  30,  1849,  213,736  immigrants  arrived  at 
New  York;  and  it  was  estimated  that  they  brought  $10,686,800,  or  ^50 
apiece.  —  Phcexix's  Report,  No.  490,  31  Cong.,  first  session. 

-  Director's  Report,  Jan,  18,  1850.  ^  Phoenix's  Report. 


518      FIIJANCIAL  HISTOilY  OF  THE  UNITED  STATES.       [1815. 


CHAPTER   XII. 

APPROPEIATIONS  AND  EXPENDITURES. 
1815-1828. 

Peace  caused  a  reduction  of  the  national  expenditure. 
But  the  arrearages  in  the  war  and  navy  departments 
especially,  and  the  remaining  balance  of  the  floating  debt, 
including  treasury  notes  and  loans,  must  be  satisfied 
before  a  permanent  arrangement  of  the  finances  could 
be  effected.  Dallas  expected  that  in  a  year  the  amount 
of  such  indebtedness,  which  was  very  large,  would  be 
known ;  and  so  nearly  fulfilled  were  his  expectations,  that 
Crawford,  who  succeeded  him,  in  his  report  the  following 
year,  reckoned  $1,540,000  as  the  total  amount  of  war 
arrearages  remaining  unpaid. 

Peace  was  declared  Feb.  18,  1815.  As  soon  as  the 
event  was  announced,  vast  quantities  of  goods  were  im- 
ported into  the  country,  in  consequence  of  which  the 
receipts  swelled  to  $36,643,598.77  within  the  year,  and 
the  treasury  was  relieved. 

Never  was  the  head  of  the  treasury  department  more 
troubled  to  make  an  estimate  of  the  receipts  and  expen- 
ditures than  for  the  year  after  the  close  of  the  war  of 
1812.  It  was,  indeed,  much  easier  to  estimate  the  probable 
demands  on  the  treasury  than  to  estimate  the  receipts. 
The  enormous  inflow  of  goods,  notwithstanding  the  high 


1815.]  ArrROPRTATIONS    AXD    EXPENDITURES.  519 

duties  exacted,  the  revision  of  the  entire  system  of  taxa- 
tion which  was  soon  to  be  made,  cut  away  the  ground 
entirely  for  estimating  with  any  degree  of  confidence  the 
probable  amount  of  the  national  income.  It  was  impossi- 
ble to  be  exact  in  making  these  calculations.  Dallas  did 
the  best  thing  possible :  he  estimated  what  the  revenues 
would  be  if  the  laws  then  in  operation  were  continued, 
and  also  their  amount  if  the  laws  were  modified  in  cer- 
tain ways  clearly  specified. 

The  only  estimate  which  need  concern  us  is  the  one 
based  on  a  modification  of  the  revenue  laws.  What 
changes  did  Dallas  recommend,  and  how  were  they  re- 
garded by  Congress?  Though  internal  taxation  had  be- 
come necessary  in  consequence  of  the  heavy  shrinkage 
of  income  from  customs,  it  was  generally  expected  that 
peace  would  bring  a  diminution  of  the  burden.  In  fulfil- 
ment of  that  exjjectation,  a  reduction  of  the  direct  tax, 
a  discontinuance  of  those  taxes  which  on  trial  had  proved 
unproductive  as  well  as  inconvenient,  and,  above  all,  the 
exoneration  of  domestic  manufactures  from  every  charge 
that  could  obstruct  or  retard  their  progress,  seemed  to 
Dallas  to  be  the  objects  that  especially  invited  legislative 
attention. 

What  he  specifically  proposed,  therefore,  was,  that 
the  Act  of  July  1,  1812,  imposing  an  additional  duty 
of  a  hundred  per  cent  on  goods,  wares,  and  mer- 
chandise imported  into  the  country,  and  also  the  Act 
of  July  29,  1813,  imposing  a  duty  on  imported  salt, 
be  continued  until  the  end  of  June,  at  which  time 
he  supposed  that  a  new  tariff  would  be  completed,  and 
put   in   operation.     Both   of  these    Acts   would  become 


620      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1815. 

inoperative  the  18th  of  February,  1816,  —  after  a  year's 
peace. 

He  also  proposed  that  the  Act  of  July  24,  1813,  impos- 
ing a  duty  on  sugar  refined  within  the  United  States,  and 
the  Act  of  Aug.  2,  1813,  imposing  a  duty  on  bank-notes, 
notes  discounted,  and  bills  of  exchange,  be  continued 
without  limitation,  but  with  proper  amendments  to  render 
the  collection  of  the  duties  more  equal  and  certain,  and 
that  the  Act  of  Dec.  15,  1814,  imposing  duties  on  car- 
riages, and  that  part  of  the  Act  of  Dec.  23,  1814,  which 
related  to  the  duties  on  sales  at  auction  and  increased 
rates  of  postage,  be  continued. 

Dallas  further  proposed  that  the  direct  tax  be  reduced 
from  six  million  dollars  to  one-half  that  amount ;  that  the 
duties  on  distilled  spirits  be  discontinued  after  the  end  of 
June,  1816 ;  and  that  the  licenses  to  distillers  be  doubled ; 
also  that  the  duties  on  licenses  to  retailers  of  wines, 
spirituous  liquors,  and  foreign  merchandise,  be  reduced  to 
the  rates  of  the  year  1813,  with  due  regard  to  the  period 
when  licenses  began  and  would  expire. 

There  were  two  other  recommendations.  One  was,  that 
the  Act  of  Jan.  18, 1815,  and  the  one  passed  a  month  later, 
imposing  duties  on  various  articles  manufactured  or  made 
for  sale  within  the  United  States,  and  the  Act  of  the  for- 
mer date,  imposing  duties  on  household  furniture  and 
watches,  be  repealed.  The  other  recommendation  was, 
that  the  Act  of  March  3,  1815,  providing  for  the  collec- 
tion of  duties  on  imports  and  tonnage,  and  another  of  the 
same  date,  fixing  the  compensation,  and  increasing  the 
responsibility,  of  collectors  of  the  direct  tax  and  internal 
duties,  be  continued  without  limitation. 


1816.]  APPROPRIATIONS   AND   EXPENDITURES.  521 

By  thus  modifying  the  revenue  system,  he  supposed 
there  would  be  a  reduction  of  seven  million  dollars  in  the 
direct  and  internal  duties ;  but  he  also  expected  that  a 
similar  sum  would  be  forthcoming  from  the  increase  of 
the  duty  on  licenses  to  distillers,  and  the  continuance 
of  the  stamp-duties  and  those  on  refined  sugar,  —  these 
sources  yielding  a  million  and  a  half  dollars,  the  salt-duty 
five  hundred  thousand  dollars,  —  while  an  increase  of  five 
million  dollars  was  expected  from  foreign  importations. 
These  recommendations,  with  two  slight  modifications, 
were  approved  by  the  Committee  of  Ways  and  Means,  and 
adopted  by  Congress.^ 

With  such  a  modification  of  the  revenue  laws,  Dallas 
estimated  there  would  be  a  deficit  of  f  6,484,269 ;  but  as 
the  entire  annual  appropriations  were  never  paid  during 
the  year,  and  as  he  had  power  to  issue  treasury-notes  to 
meet  any  deficiency,  he  did  not  ask  for  more  legislation 
to  enable  him  to  meet  the  probable  demands  on  the  treas- 
ury during  the  next  twelve  months. 

In  managing  the  finances,  it  had  been  the  custom  to 
consider  the  demands  and  supplies  of  each  year  without 
regard  to  the  balances  of  appropriations,  or  of  revenue 
existing  at  the  close  of  preceding  years.  Dallas  pursued 
a  similar  course.  The  annual  appropriations  had  never 
been  wholly  absorbed  in  the  year  for  which  they  were 
granted ;  and,  in  making  entries  of  the  revenue,  a  discrim- 
ination was  maintained  between  the  amount  of  duties 
accruing  within  the  year  as  a  debt  to  the  government,  and 
the  amount  paid  as  money  into  the  treasury.  The  annual 
appropriations,  however,  were  not  charged  on  the  revenue 

1  Jan.  9,  1816,  3  Finance,  p.  62. 


522      FINANCIAL  HISTOEY  OF  THE  UNITED  STATES.      [1816. 

of  the  year  specificall}^  in  which  they  were  made ;  and, 
indeed,  they  were  satisfied  whenever  demanded  from  any 
unappropriated  money  in  the  treasury,  without  reference 
to  the  time  when  the  revenue  accrued,  or  when  the  money 
was  actually  received. 

Dallas  did  not  remain  much  longer  in  the  treasury  de- 
partment. He  had  taken  office  at  a  critical  time,  and,  by 
his  wisdom,  boldness,  and  firmness,  extricated  the  govern- 
ment from  the  threatened  gulf  of  bankruptcy.  Though 
holding  office  less  than  two  years  and  a  half,  he  had 
wrought  wonders.  He  found  the  financial  machinery  of 
the  government  disabled  for  want  of  a  competent  head  to 
manage  it :  when  he  retired,  it  was  in  fine  working  condi- 
tion. No  secretary  of  the  treasury,  except  Hamilton, 
ever  won  so  much  reputation,  and  so  justly,  in  such  a 
brief  period. 

He  was  succeeded  by  Crawford,^  who  was  secretary  dur- 
ing the  eight  years  of  Monroe's  administration.  He  had 
represented  Georgia  in  the  Senate,  and  was  familiar  with 
all  the  financial  discussions  and  legislation  of  the  war 
period.  He  had  defended  the  first  United-States  bank, 
and  had  contended  for  the  renewal  of  its.  charter  with 
great  power:  he  was  no  less  a  friend  of  the  new  institu- 
tion. In  the  prime  of  life,  possessing  an  intuitive  rather 
than  a  reasoning  mind,  with  great  capacity  for  work,  and 
of  the  strictest  integrity,  he  was  well  qualified  for  the 
office. 

His  predecessor  had  accomplished  very  much  in  restor- 
ing the  national  credit,  and  replenishing  the  treasury. 
The  net  revenues  from  duties  on  merchandise  and  ton- 

1  See  p.  299. 


1817.]  APPROPRIATIONS    AND   EXPENDITURES.  523 

nage,  internal  duties,  direct  tax,  sale  of  public  lands, 
postage,  and  incidental  receipts,  had  risen  from  $11,500,- 
606,  in  1814,  to  $49,893,219,  from  the  same  sources,  the 
following  year.  This  was  enough  to  enable  Crawford  to 
pay  all  the  immediate  demands  on  the  government,  and 
leave  a  large  sum  to  be  applied  in  reducing  the  public 
debt. 

Crawford,  therefore,  was  not  troubled  about  getting 
funds  to  discharge  the  public  obligations.  He  expected 
to  pay  the  demands  on  the  treasury  in  the  eastern  section 
of  the  Union  in  local  currency  by  the  end  of  the  year ; 
but  this  expectation  was  not  realized.  Payments  to  the 
government  in  that  section  had  been  made  in  treasury- 
notes.  To  discharge  its  payments  there,  which  consisted 
almost  wholly  of  interest  on  the  public  debt  and  portions 
of  the  principal,  Crawford  saw  no  other  way,  beside 
issuing  treasury-notes,  except  to  obtain  a  temporary  loan 
from  the  United-States  bank.  The  latter  alternative  was 
chosen,  and  a  loan  was  obtained. 

When  those  claims  were  satisfied,  there  was  no  danger 
of  embarrassment  from  New  England  until  the  next  quar- 
terly payment  of  interest.  To  escape  resorting  to  loans 
for  that  purpose,  the  secretary  urged  a  cessation  of  the 
issue  of  treasury-notes  of  all  kinds.  By  adopting  this 
policy,  the  revenue  in  that  quarter,  he  declared,  would  be 
more  than  sufficient  to  satisfy  all  the  claims  of  the  public 
creditors.^  Congress  accordingly  passed  a  law  for  retiring 
them,  which  produced  the  desired  effect.^ 

At  an  early  period  in  Crawford's  administration  of  the 

1  Annual  Report,  December,  1816. 

2  Act,  March  3,  1817,  14  Coug.,  second  session,  chap.  85. 


524      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1817. 

finances,  Congress  considered  the  subject  of  unsettled 
balances  in  favor  of  the  government.^  A  report  was  made 
in  1816,  containing  considerable  information,  and  many 
recommendations  for  preventing  such  large  defaults  in 
the  future  receipts  and  expenditure  of  the  public  revenues 
as  appeared  on  the  face  of  many  of  the  unsettled  bal- 
ances. The  law  which  prescribed  how  the  accounts  should 
be  kept  was  amended  the  next  year,  and  all  accounts 
thereafter  were  to  be  settled  by  the  treasury  department. 
The  second  and  third  auditors  were  charged  with  auditing 
the  accounts  of  the  war  department ;  the  accounts  of  the 
navy  went  to  the  fourth  auditor ;  those  of  the  State  de- 
partment, post-office,  and  Indian  affairs,  to  the  fifth ;  and 
the  other  accounts,  to  the  first.  Two  persons  were  ap- 
pointed to  perform  the  functions  of  comptroller,  which 
previously  had  been  performed  by  one.  The  secretary 
of  the  treasury  was  required  to  "  cause  all  accounts  of 
the  expenditure  of  money  to  be  settled  within  the  year," 
except  where  the  distance  was  so  great  as  to  prevent  his 
doing  this ;  and,  in  regard  to  expenditures  at  such  places, 
he  was  to  fix  periods  for  making  settlements.  The  comp- 
troller, too,  was  to  lay  before  Congress  annually,  during 
the  first  week  of  the  session,  a  list  of  those  officers  who 
had  failed  to   make   settlements   in    conformity  to   law.^ 

1  Huger's  Report,  April  24, 1816,  3  Finance,  p.  123. 

2  Act,  March  3,  1817,  14  Cong.,  second  session,  chap.  45.  It  was  further 
enacted,  "  that  in  the  annual  statements  of  all  accounts  on  which  balances 
appear  to  have  been  due  more  than  three  years,  which  the  comptroller  is 
now  required  by  law  to  make,  he  shall  hereafter  distinguish  those  accounts 
the  balances  appearing  on  which  shall  in  his  opinion  be  owing  to  difficul- 
ties of  form,  which  he  may  think  it  eciuitable  shall  be  removed  by  an  Act 
of  Congress;  and  where  the  debtors  by  whom  such  balances  shall  have 


IS  IT.]  APPROPRIATIONS   AND    EXPENDITURES.  525 

The  largest  number  of  unsettled  accounts  was  in  the  de- 
l)artment  of  state. 

With  respect  to  estimating  the  annual  receipts,  it  was 
not  much  easier  for  Crawford  to  perform  this  duty  than 
it  had  been  for  Dallas  and  his  predecessors.  Said  Secre- 
tary Woodbury  in  1835,  "  The  difficulty  in  attaining 
much  certainty  in  estimating  the  receipts  from  either 
customs  or  lands  in  any  particular  year,  in  a  country  so 
new,  enterprising,  and  prosperous  as  ours,  has  ever  been 
considerable,  in  addition  to  the  fluctuations  we  always 
shall  be  liable  to  from  short  crops,  pestilence,  and  war." 
But  the  revenues  were  often  affected  by  other  powerful 
causes.  Of  these,  two  were  the  duties  levied  on  imports, 
and  the  quantity  and  quality  of  the  money  in  circulation. 
The  tariff-laws  were  frequently  changed;  and  every 
change  affected  importations  in  some  way,  and,  of  course, 
the  revenues.  So,  too,  when  mone}^  was  abundant, 
whether  the  duties  on  importations  were  high  or  low, 
they  increased.  Another  cause  affecting  the  revenues 
was  the  giving  of  bonds  by  importers.  Credit  was  al- 
lowed for  a  very  large  portion  of  the  duties,  and  the 
government  did  not  always  receive  the  amount  due  at  the 
time  stipulated ;  and  not  infrequently  considerable  losses 
occurred.  Then,  again,  a  considerable  amount  of  duties 
was  refunded  every  year  in  the  way  of  drawbacks ;  and 
the  amount  which  the  government  was  likely  to  be  asked 
to  refund  could  not  be  estimated  very  accurately.     With 

been  clue  more  than  three  j-ears  shall  be  insolvent,  and  have  been  reported 
to  Congress  for  three  successive  years  as  insolvent,  the  comptroller  shall 
not  be  required  in  such  case  to  continue  to  include  such  balances  in  the 
statement  above  mentioned."  —  Sect.  14. 


526      FI>rA:^TCrAL  history  of  the  united  states.      [1817. 

so  many  causes  acting  with  greater  or  less  force,  the  reader 
will  perceive  how  difficult  it  was  to  estimate  the  probable 
amount  of  revenue ;  yet  it  was  necessary  to  make  an 
estimate  in  order  to  know  how  to  provide  for  the  expen- 
ditures. The  annual  variation,  therefore,  between  the  esti- 
mated receipts  and  the  actual  ones,  caused  no  surprise. 
The  absence  of  variations  would  have  been  surprising. 
Crawford,  like  previous  secretaries,  presented  estimates  of 
the  receipts,  and  also  gave  reasons  (which  were  usually 
very  brief)  on  which  his  calculations  were  based.  They 
were  subsequently  examined  by  the  committee  of  ways 
and  means,  and  a  report  was  made  thereon  to  Congress ; 
and  his  reasonings,  in  nearly  every  instance,  were  re- 
garded conclusive  by  the  committee.  This  was  no  small 
praise,  for  some  of  the  estimates  of  his  successors  have 
been  very  roughly  overhauled. 

It  would  require  too  much  space  to  explain  the  grounds 
on  which  these  estimates  were  annually  founded ;  nor  can 
we  delay  to  explain  the  causes  of  the  variation  between 
the  estimated  and  the  actual  receipts  of  each  year.  One 
of  the  noteworthy  causes,  not  fully  weighed  by  Crawford 
the  first  year,  was  the  enormous  importation  of  goods,  not- 
withstanding the  high  tariff.  Dallas  had  committed  the 
same  error  the  year  previously.  He  neither  knew,  nor  had 
he  any  reason  for  expecting,  that  the  country  would  be 
deluged  with  the  products  of  the  Old  World.  Then  the 
tariff  of  1816  went  into  operation,  which,  two  years  after- 
ward, was  considerably  modified.  The  huge  volume  of 
paper  currency  shrank  enormously,  and  this  event  checked 
importations.  These  were  the  more  potent  causes  of  vari- 
ation while  Crawford  administered  the  finances. 


181 T.]  APrROPKTATIOXS   AND    EXPENDITURES.  527 

To  estimate  the  expenditures  was  not  so  difficult.  These 
were  made  in  the  beginning  by  the  several  departments, 
and  then  submitted  by  the  secretary  of  the  treasury  to 
Congress.  Sometimes  they  were  diminished,  sometimes 
increased.  Almost  always  new  expenditures  were  author- 
ized. When  the  amount  was  determined,  and  also  the 
estimates  of  receipts  which  were  likely  to  accrue  from 
existing  laws,  a  foundation  was  laid  for  several  inquiries. 
Will  the  receipts  probably  be  sufficient  to  pay  the  expen- 
ditures? Shall  the  revenues  be  drawn  from  other  sources? 
or,  in  case  of  a  deficiency,  shall  this  be  bridged  by  borrow- 
ing, or  by  cutting  down  expenditures?  If  not,  what  new 
fountains  of  national  income  shall  be  opened  ?  These 
inquiries  were  answered  in  various  ways,  and  too  often 
Congress  displayed  a  painful  lack  of  wisdom  and  principle 
in  answering  them. 

During  the  greater  part  of  Crawford's  term  of  office 
the  revenues  were  so  ample  that  he  did  not  have  to  think 
about  increasing  them.  The  current  expenditures  were 
promptly  paid,  and  the  reduction  of  the  debt  was  contin- 
ued. In  his  annual  report,  rendered  near  the  close  of 
1817,  the  permanent  revenue  was  estimated  at  129,525,000 
per  annum,  and  the  annual  expenditure  was  stated  at 
$21,946,351.  Congress  thought  that  the  time  had  already 
come  for  parting  with  the  internal  revenue  ;  and  conse- 
quently none  was  collected  after  the  year  1817,  except 
the  balance  which  had  accrued  before  that  time.^     The 


1  The  amount  of  internal  duties  accruing  to  the  government  from  the 
beginning  of  the  year  1814  to  the  end  of  1817,  exclusive  of  the  direct  tax, 
exceeded  seventeen  million  dollars.  —  Lowndes's  Report  on  the  Repeal  of 
the  Internal  Duties,  Dec.  0, 1817,  3  Finance,  p.  230. 


528      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1820. 

committee  who  considered  the  subject  did  not  regard  the 
importations  of  the  three  previous  years  as  furnishing  a 
certain  criterion  for  the  future,  yet  believed  they  would 
remain  the  same ;  nor  was  their  belief  less  strong  in  the 
continuance  of  the  exports  of  the  country  without  a 
diminution  in  quantity  and  value.  They  entertained  no 
doubt  whatever,  "  under  the  circumstances  of  the  United 
States,  as  to  the  propriety  of  reducing  a  revenue  so  far 
exceeding  their  ordinary  expenses." 

Congress  not  only  repealed  the  internal  duties,  but  at 
the  same  time  increased  the  expenditures.  By  thus  re- 
ducing the  receipts,  and  swelling  the  expenditures  of  the 
government,  there  would  have  been  a  deficit  the  next 
year,  save  for  the  arrearage  of  the  direct  tax  and  internal 
duties,  and  the  balance  which  was  in  the  treasury  at  the 
beginning  of  the  year. 

It  soon  appeared,  however,  that  the  secretary  of  the 
treasury,  and  Congress,  had  been  too  confident  in  their 
estimates  of  the  national  income  accruing  from  imports. 
The  internal  duties  were  removed  when  the  revenue  from 
imports  was  at  top  high-water  mark.  Importations  grew 
more  excessive,  after  the  return  of  peace,  until  the  close  of 
1817;  and  then  there  was  a  re-action.  Crawford  informed 
Congress,  that,  if  the  expenditures  were  not  reduced,  it 
would  be  necessary  to  lay  new  taxes.  In  any  event, 
wliether  the  revenue  was  augmented  or  the  expenditure 
diminished,  a  loan  was  necessary.  The  augmentation  of 
the  one,  or  the  diminution  of  the  other,  could  not  be 
effected  soon  enough  to  prevent  a  deficiency ;  a  loan  of 
three  million  dollars,  therefore,  was  authorized.^ 

1  Act,  May  15,  1820,  10  Cong.,  first  session,  chap.  103. 


1831.]  APPKOPEIATIONS   AXD   EXPENDITURES.  629 

The  situation  was  not  overlooked  by  the  Connnittee  of 
Ways  and  Means,  who  prescribed  as  a  remedy  public  and 
private  retrenchment.  "  From  the  extraordinary  depres- 
sion of  commerce,  within  the  last  three  years,  the  stagna- 
tion of  our  navigation,  the  depreciation  in  the  value  of 
our  exports,  the  corresponding  depreciation  in  the  value 
of  property  of  every  description,  and  the  serious  embar- 
rassments under  which  every  branch  of  industry  now 
labors,  economy  and  retrenchment  in  the  expenditures  of 
every  citizen  are  imperiously  required.  The  finances 
of  the  nation  being  seriously  affected  by  those  causes, 
there  would  seem  to  arise  a  correspondent  obligation  on 
the  government  to  retrench  its  expenditures,  and  econ- 
omize its  means.  In  the  infancy  of  our  institutions  our 
expenses  were,  in  general,  limited  by  our  receipts.  We 
have  been  satisfied  to  advance  gradually  in  furthering  the 
system  of  national  security  and  independence.  Our  pace 
has  been  greatly  quickened  toward  the  accomplishment 
of  these  objects,  since  the  restoration  of  peace,  by  the 
great  accession  of  our  revenue.  From  that  period  it  has 
been  in  what  may  be  considered  a  forced  state.  We  are 
now  getting  back  to  a  condition  more  congenial  with 
our  population  and  national  wealth."  ^  Wisdom  clearly 
demanded  keeping  the  expenditures  within  the  national 
income. 

Congress  hesitated  to  apply  the  remedy,  though  the 
necessity  for  doing  so  was  very  apparent.  Another  j-ear 
passed  away,  and  the  gap  between  income  and  expendi- 
ture  had   widened.     The    committee    on    manufactures ^ 

1  Report  on  Deficit  in  the  Revenue,  April  14,  1820,  3  Finance,  p.  522. 

2  Jan.  15,  1821,  3  Finance,  p.  594. 


530      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1831. 

drew  the  following  picture  of  the  situation.  "  It  is  not  a 
matter  of  very  great  consolation  to  know,  that,  at  the  end 
of  thirty  years  of  its  operation,  this  government  finds  its 
debt  increased  twenty  million  dollars,  and  its  revenue 
inadequate  to  its  expenditure ;  the  national  domain  im- 
paired, and  twenty  million  dollars  of  its  proceeds  ex- 
pended ;  thirty-five  million  dollars  drawn  from  the  people 
by  internal  taxation,  three  hundred  and  forty-one  million 
dollars  by  impost,  yet  the  public  treasury  dependent  on 
loans ;  in  profound  peace,  and  without '  national  calam- 
ity ;  the  country  embarrassed  with  debts,  and  real  estate 
under  rapid  depreciation ;  the  markets  of  agriculture,  the 
pursuits  of  manufacture,  diminished  and  declining ;  com- 
merce struggling,  not  to  retain  the  carrying  of  the  prod- 
uce of  other  nations,  but  our  own.  There  is  no  national 
interest  which  is  in  a  healthful,  thriving  condition :  the 
nation  at  large  is  not  so ;  the  operations  of  the  govern- 
ment and  individuals  alike  labor  under  difiBculties  which 
are  felt  by  all."  Another  loan  for  five  million  dollars  was 
necessary  to  cover  the  probable  deficit  of  the  year.^  It 
was  easier  for  Congress  to  authorize  loans  than  to  reduce 
expenditures.^ 

The  next  year,  however,  a  select  committee  were  ap- 
pointed to  inquire  whether  any  retrenchment  could  be 
made  without  impairing  the  public  service.  They  re- 
ported ^  the  following  resolutions :  — 

1  Act,  March  3,  1821,  IG  Cong.,  second  session,  chap.  38. 

'^  Crawford's  Annual  Report,  December,  1820.  Com.  on  Errors  in  the 
Estimates,  Dec.  28,  1820,  3  Finance,  p.  580.  Report  of  Com.  of  Ways  and 
Means  on  the  State  of  the  Finances,  Feb.  28,  1821,  3  Finance,  p.  677. 

8  April  15,  20,  27,  1822,  3  Finance,  pp.  800,  804,  805. 


1832.]  APPROPRIATIONS    AND    EXPENDITURES.  531 

1.  That  the  policy  of  resorting  to  loans  for  the  sup- 
port of  the  government  in  times  of  peace  is  unwise  and 
inexpedient ; 

2.  That  this  government  owes  it  to  the  people  to  take 
efficient  measures  for  the  redemption  of  the  public  debt ; 

3.  That  the  resources  of  this  nation  are  such  as  to 
render  unnecessary  a  resort  to  a  system  of  internal,  direct, 
and  indirect  taxation ; 

4.  "That  this  government  ought  to  adopt  such  a  system 
of  retrenchment  as  will  dispense  with  useless  expenditures, 
and  bring  the  pay  and  salaries  of  government  to  what 
they  were  during  the  administration  of  former  presidents ; 

5.  That  the  tariff  ought  to  be  modified  with  a  view 
to  revenue.^ 

The  fourth  resolution  was  carried  into  immediate  effect, 
expenditures  were  reduced,  at  the  same  time  the  revenues 
began  to  swell,  and  the  pressure  on  the  treasury  was 
relieved. 

The  chief  cause  of  the  diminution  of  the  revenues  was 
a  heavy  contraction  of  the  paper  money  issued  a  few 
years  before.  In  1819  and  1820  the  tide  was  at  the  low- 
est point,  and  the  effects  of  the  contraction  were  severely 
felt.  The  sales  of  public  lands  fell  off;  and  many  who 
had  purchased  were  unable  to  pay,  and  the  government 
was  obliged  to  grant  relief.  The  banks  were  in  a  preca- 
rious condition ;  for  their  issues  were  excessive,  and  the 
precious  metals  were  fleeing  to  the  East  Indies.  The 
banks  could  not  do  otherwise  than  contract  their  dis- 
counts in  order  to  withdraw  their  notes  from  circulation, 
and  thus  prevent  their  presentation  for  payment,  which 

1  April  15,  1822,  3  Finance,  p.  800. 


532      FINANCIAL  HISTOKY  OF  THE  UNITED  STATES.      [1817. 

would  have  caused  immediate  and  general  failure.  "  This 
operation,  so  oppressive  to  their  debtors,"  Crawford  de- 
clared, "  was  indispensably  necessary  to  the  existence  of 
specie  payments,  and  must  be  continued  until  gold  and 
silver  should  form  a  just  proportion  of  the  circulating 
currency."  The  case  required  heroic  treatment,  which 
was  applied ;  but  the  patient  was  restored  after  long  and 
severe  suffering. 

When  Crawford  was  at  the  head  of  the  treasury  de- 
partment, an  interesting  inquiry  was  raised  in  the  Senate 
concerning  the  loans  made  by  the  government  to  banks 
and  individuals.  No  very  large  sums  were  ever  loaned ; 
but,  from  an  early  date,  the  notes  of  importers  were  some- 
times continued,  and  assistance  in  several  instances  was 
rendered  to  the  State  banks.  Deposits  were  put  in  them 
in  1819  in  order  to  enable  them  to  fulfil  their  engage- 
ments. The  government  never  lost  any  money  by  these 
transactions.^ 

Beside  the  legislation  already  described,  for  the  more 
perfect  ordering  of  the  finances,  other  laws  of  similar 
design  were  enacted.  The  secretary  of  the  Senate,  and 
clerk  of  the  House,  were  required  to  give  security  "  for 
the  faithful  application  and  disbursement "  of  the  public 
money  received  by  them,  and  to  keep  the  same  in  banks 
until  they  disbursed  it.'^  Bonds  were  required  of  pursers 
for  the  proper  discharge  of  their  duties.^  Congress  en- 
acted that  judges  should  deposit  the  money  in  their 
courts,  or,  subject  to  their  order,  in  a  branch  of  the  United- 

1  Crawford's  Com.  to  the  Senate,  Feb.  27,  1823,  4  Finance,  p.  265. 

2  Act,  Feb.  23,  1815,  13  Cong.,  third  session,  chap.  51. 

8  Act,  March  1,  1817, 14  Cong.,  second  session,  chap.  24. 


1819.]  APPROPRIATIONS    AND    EXPENDITURES.  533 

States  bank.  Nor  could  it  be  drawn,  except  by  their 
order.^  The  number  and  compensation  of  the  clerks  in 
the  different  offices  were  regulated.^  After  the  3d  of 
March,  1819,  the  second  auditor  was  required  to  receive 
and  examine  "all  unsettled  accounts  arising  out  of  Indian 
affairs,"  except  those  "appertaining  to  Indian  trade ; "  and 
the  treasurer  was  required  to  disburse  all  the  money  or- 
dered for  the  use  of  the  Indian  department.^  The  duty 
was  enjoined  on  the  secretary  of  the  treasury  to  carry  to  the 
account  of  the  surplus  fund  any  money  appropriated  for 
the  war  or  navy  department  remaining  unexpended  after 
the  object  had  been  effected  for  which  the  appropriation, 
was  made.  The  war  and  naval  secretaries  were  required 
to  lay  before  Congress,  annually,  a  statement  of  the  appro- 
priations of  the  preceding  year,  —  showing  the  amount 
appropriated  under  each  specific  head,  the  amount  ex- 
pended, and  the  balance,  —  and  to  estimate  the  probable 
demand  on  each  unexpended  appropriation.  Money  re- 
maining unexpended  in  these  departments,  after  two 
years  from  the  date  of  its  appropriation,  was  to  be  car- 
ried to  the  account  of  the  surplus  fund.  The  transfer 
of  "any  appropriation  for  the  service  of  one  year  to 
another  branch  of  expenditure  in  a  different  year,"  was 
no  longer  allowed,  though  the  President,  in  a  few  cases, 
which  were  specified,  was  authorized  to  transfer  appro- 
priations in  the  naval  department.  No  contract  was  to 
be  made  by  the  secretaries  of  the  several  departments, 

1  Act,  April  18,  1814,  13  Cong.,  second  session,  chap.  GG.     Act,  March  3, 
1817, 14  Cong.,  second  session,  chap.  108. 

2  Act,  April  20, 1818,  15  Cong.,  first  session,  chap.  87. 

^  Act,  Feb.  24, 1819,  15  Cong.,  second  session,  chap.  43. 


534      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1830. 

"except  under  a  law  authorizing  the  same,  or  under  an 
appropriation  adequate  to  its  fulfilment."  Certain  con- 
tracts, however,  Avhich  were  specified,  could  be  made  in 
the  mode  previously  adopted  by  Congress.  Every  land- 
purchase  was  to  be  based  on  a  law  enacted  for  that 
purpose.  The  secretary  of  the  treasury  was  required  "to 
annex"  to  the  annual  estimates  of  appropriations  a  state- 
ment of  those  for  the  preceding  year,  the  sums  in  the 
treasury  (or  in  the  possession  of  the  treasurer  as  agent 
of  the  war  and  navy  departments)  remaining  from  the 
appropriations  of  former  years,  and  to  estimate  the  amount 
of  the  sums  which  would  not  be  needed  to  defray  the 
expenditures  incurred  in  previous  years ;  more  especially, 
to  show  the  entire  amount  which  might  be  applied  to 
other  purposes.^  In  1820  an  officer  was  appointed  to 
collect  money  due  from  delinquent  officials,  and  regula- 
tions were  prescribed  to  guide  him  in  conducting  the 
business.^ 

At  a  later  period  Congress  enacted  that  money  remain- 
ing with  the  treasurer,  as  agent  of  the  war  and  navy  de- 
partments, should  be  repaid,  under  the  direction  of  their 
respective  heads,  into  the  treasury.  At  the  same  time 
it  was  further  enacted  that  all  money  appropriated  for 
the  use  of  the  Avar  and  navy  departments  should  be  drawn 
from  tlie  treasury  by  warrants  of  the  secretary  of  the 
treasury,  issued  on  the  requisition  of  the  respective  secre- 
taries of  those  departments,  countersigned  by  the  second 
comptroller,  and  registered  by  the  proper  auditor.^ 

1  Act,  May  1,  1820,  16  Cong.,  first  session,  chap.  52. 

2  Act,  May  15,  1820,  1(5  Cong.,  first  session,  chap.  107. 

3  Act,  May  7,  1822,  17  Cong.,  first  session,  chap.  90. 


1885.]  APPROPRIATIONS    AND    EXPENDITURES.  535 

No  advance  of  public  money  was  to  be  made  in  any 
case  whatever.  With  respect  to  contracts  for  performing 
services  or  delivering  articles,  payment  was  not  to  exceed 
the  value  of  the  services  rendered  or  articles  furnished. 
Under  the  especial  direction  of  the  President,  however, 
advances  could  be  made  to  disbursing  officers  when  neces- 
sary "to  the  faithful  and  prompt  discharge  of  their  re- 
spective duties,  and  to  the  performance  of  the  public 
engagements."  Quarterly  returns  were  required  of  every 
officer  or  agent  employed  by  the  government.^ 

Such  are  the  more  noteworthy  events  whi&h  occurred 
while  Crawford  administered  the  finances.  He  was  suc- 
ceeded by  Richard  Rush  of  Philadelphia,  whose  manage- 
ment of  them  at  the  time  Adams  was  President  was  so 
easy,  that  nothing  occurred  worthy  of  note  beside  what  has 
already  been  laid  before  the  reader  in  other  parts  of  this 
work.  Rush's  annual  reports  were  very  lengthy,  compared 
with  the  concise  reports  presented  by  Crawford ;  and  much 
space  was  given  to  the  discussion  of  the  tariff,  always 
advocating  the  doctrine  of  protection.  Crawford's  utter- 
ances on  the  subject  were  very  mild  and  guarded.  Rush, 
in  his  last  report,  gave  a  concise  account  of  the  adminis- 
tration of  the  treasury  department  during  his  four  years 
of  office,  which  was  one  of  the  most  prosperous  quadren- 
nials  in  the  history  of  the  government.  The  debt  was 
largely  reduced,  the  expenditures  were  not  excessive,  and 
the  financial  legislation  of  the  period  was  tempered  with 
wisdom. 

The  receipts  had  exceeded  those  of  the  four  previous 
years  by  an  average  of  twenty-four  per  cent :  yet  the 
1  Act,  Jan.  31,  182.'},  17  Coug.,  second  session,  chap.  9. 


536      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1839. 

increased  expenditure,  aside  from  the  amount  paid  toward 
reducing  the  debt,  had  been  less  than  ten  per  cent ;  and 
this  increase,  too,  was  chiefly  for  internal  improvements. 
Fourteen  millions  had  been  spent  in  this  direction.  Of 
the  ninety-seven  millions  received  into  the  treasury  during 
these  four  years,  all  had  been  expended,  except  a  small 
balance,  without  any  embarrassment  to  the  public  service. 
Such  efficient  action,  on  the  part  of  the  government,  was 
due  in  no  small  measure  to  the  United-States  bank.  Rush 
paid  a  warm  and  just  tribute  to  the  efficiency  and  fairness 
of  the  bank ;  nor  did  any  successor  forget  to  do  the  same 
thing,  until  President  Jackson  determined  to  destroy  it. 

The  secretary  was  justified  in  indulging  in  the  following 
glowing  retrospect :  "  The  receipts  of  the  existing  year 
greater,  by  nearly  two  millions  of  dollars,  than  had  been 
foreseen,  with  a  prospect  of  income  for  the  next  scarcely 
less  abundant ,  the  receipts  of  the  last  four  years  present- 
ing a  large  and  gratifying  excess  over  those  of  the  four 
years  preceding ;  the  foreign  commerce  of  the  country  in 
a  state  of  solid  prosperity,  from  the  improving  condition 
of  its  leading  departments  of  industry  at  home,  and  conse- 
quent increase  in  the  exportation  of  its  products ;  the 
increase  of  its  tonnage  (that  foundation  of  naval  strength, 
as  well  as  commercial  riches)  keeping  pace  with  the  in- 
crease of  commerce  ;  the  public  debt  annually  and  rapidly 
decreasing  under  the  application  of  surplus  funds  annually 
and  rapidly  increasing ;  the  public  revenue  preserved  at 
an  equal  value  in  every  part  of  the  Union,  through  the 
power  of  transfers  promptly  made  by  the  Bank  of  the 
United  States,  without  expense  or  risk  to  the  nation ;  and 
the  currency  maintained  in  a  healthful  state  by  the  same 


18'iO.l  APPROPRIATIONS    AND    EXPENDITURES.  537 

institution,  —  such  is  the  great  outline  of  the  financial 
and  commercial  condition  of  the  country ,  a  condition  of 
the  result  of  good  laws  faithfully  administered,  and  of  the 
aggregate  industry  of  an  enterprising  free  people."  Such 
is  the  bright  picture  which  Rush  drew  when  closing  his 
administration  of  the  treasury  office. 

In  smooth,  easy  periods,  history,  like  alluvial  soil,  is 
slowly  made.  It  is  not  until  men  grow  very  wicked 
that  human  action  becomes  exciting,  and  the  pages  of  his- 
tory are  crowded  with  events.  But  if  no  dark  shadow 
appeared  while  Rush  was  at  the  head  of  the  treasury  de- 
partment, was  not  the  steady,  mild  shining  of  the  sun  of 
prosperity  to  be  preferred  to  the  more  exciting  events  of 
earlier  and  later  times  ? 


538      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1829. 


CHAPTER  XIII. 

APPKOPRIATIONS  AND  EXPENDITURES. 
182S-1840. 

The  twelve  years  covered  by  this  chapter  are  marked 
by  many  extraordinary  financial  events.  The  country 
was  ablaze  with  political  excitement ;  business  was  lifted 
high  upon  the  shores  of  prosperity,  from  which,  alas !  it 
was  soon  drawn  back  into  a  fearful  abyss;  expenditures 
rose  to  a  huge  figure :  yet  so  strongly  infected  was  the 
legislative  mind  with  the  desire  to  continue  them,  that, 
long  after  the  necessity  for  heavy  retrenchment  clearly 
appeared,  the  step  was  not  taken. 

Jackson  was  President.  In  the  beginning,  things  worked 
smoothly.  Ingham,  the  President's  first  secretary  of  the 
treasury,  remained  two  years  at  his  post,  encountering  no 
dangerous  snags.  He  was  an  active  Pennsylvania  politi- 
cian, and  obtained  the  office  through  the  influence  of  the 
friends  of  Mr.  Calhoun.  He  had  been  a  member  of  Con- 
gress for  seven  years,  but  had  shown  no  special  aptitude 
for  finance.  Though  not  the  first  choice  of  the  President, 
he  was  acceptable  to  the  various  elements  in  his  party ; 
and  those  who  knew  him  best  had  no  misorivinffs  concern- 
ing  his  ability  to  [)erform  successfully  the  easy  duties 
then  appertaining  to  the  treasury  office.  The  country 
smiled  with   prosperity ;   the  revenues  were   ample ;   the 


1S31.]  APPROPRIATIONS    AND   EXPENDITURES.  539 

public  debt  was  rapidly  lessening,  which  caused  unmixed 
joy  througlioiit  the  land. 

In  1828  the  tariff  on  imports  was  raised.  Confidently 
expecting  the  event  would  happen,  importations  were 
heavier,  and  the  treasury  was  enriched.  In  1831  the  tax 
on  salt  was  removed,  and  the  duties  on  tea,  coffee,  and 
cocoa,  were  reduced.  Still  the  revenue  was  abundant, 
and  the  affairs  of  the  country  were  easily  and  successfully 
conducted. 

In  the  treasury  report  for  1831,  which  was  made  by 
Robert  McLane  of  Delaware,  the  successor  of  Ingham, 
there  was  a  noteworthy  reference  to  the  unsatisfied  appro- 
priations for  the  year,  and  of  the  amount  needed  to  meet 
them.  To  get  a  clear  idea  of  the  subject,  a  short  explana- 
tion is  necessary. 

Appropriations  were  made  by  Congress  for  each  calen- 
dar year ;  the  fiscal  year,  at  that  time,  beginning  on  the 
first  day  of  October,  and,  of  course,  ending  on  the  last  day 
of  the  following  September.  When  the  secretary  rendered 
his  annual  report,  he  gave  an  account  of  the  actual  re- 
ceipts and  expenditures  for  the  calendar  year,  and  also  an 
account  or  the  estimated  receipts  and  expenditures  for 
the  same  period.  For  the  first  three  quarters  the  actual 
receipts  and  expenditures  could  be  given,  but,  for  tlie  last 
quarter,  only  an  estimate,  as  the  accounts  were  not  closed 
until  the  end  of  the  year.  But  with  the  expiration  of  the 
calendar  year  the  expenditure  of  money  for  that  year  did 
not  cease :  on  the  contrary,  there  were  always  future 
expenditures  which  were  chargeable  to  it.  These  might 
amount  to  several  millions  or  only  a  small  sum.  In  mak- 
ing estimates  of  the  receipts  and  expenditures,  the  secre- 


540      FIXAXCIAL  HISTORY  OF  THE  UNITED  STATES.       [1831. 

taiies  of  the  treasury  did  not  take  these  expenditures  into 
account  until  the  time  of  McLane,  who,  in  his  report  for 
1831,  announced  that  the  unsatisfied  appropriations  for 
that  year  were  estimated  at  $4,139,823.13.  The  reason, 
doubtless,  why  his  predecessors  had  not  considered  them, 
was,  at  tlie  end  of  every  year  the  same  state  of  things 
existed :  consequently,  if  a  balance  remained  at  the  end  of 
1831  to  be  paid  the  next  year,  so,  at  the  end  of  1832,  there 
would  probably  be  an  unpaid  balance  equally  large ;  in 
other  words,  there  was  an  unpaid  balance  running  all  the 
time,  the  omission  to  take  account  of  which,  thus  far,  had 
not  disturbed  any  calculations  in  making  further  estimates 
of  revenue  and  expenditure. 

Usually,  if  an  appropriation  was  not  expended  within 
two  years,  it  fell  into  the  sinking-fund,  and  could  not  be 
used  unless  re-appropriated.  But  when  a  contract  was 
made,  based  on  an  appropriation  of  money,  like  the  build- 
ing of  a  ship,  the  appropriation  did  not  fall  into  the 
sinking-fund,  even  though  two  years  had  expired  after 
making  it.  There  were  many  cases,  too,  like  those  of 
vessels  on  long  cruises,  in  which  appropriations  could  not 
be  settled  within  the  regular  period;  so  that  a  charge 
which  properl}^  belonged  to  the  year  1831  could  not  be 
entered  for  several  years  afterward. 

A  clearer  and  more  accurate  idea  of  the  national  expen- 
ditures would  have  been  presented  if  the  secretary  of  the 
treasury,  in  every  annual  report,  had  described  the  amount 
of  unsatisfied  appropriations,  and  the  nature  of  them. 
Then  it  would  have  appeared  what  portion  of  the  money 
appropriated,  but  not  expended,  it  was  absolutely  neces- 
sary to   expend   to  fulfil   the  engagements   already  con- 


1831.]  APPROPRIATIONS   AND   EXPENDITURES.  641 

tracted  (except  in  the  case  of  ships  at  sea,  which  were 
unable  to  make  returns),  and  what  portion  could  still  be 
diverted  to  other  purposes  by  Congress,  if  necessary, 
without  impairing  any  obligation. 

The  public  debt  at  this  time  was  nearly  extinguished : 
consequently  a  reduction  of  the  duties  could  be  safely 
made.  There  were  two  ways  of  making  them :  one 
way  was  to  extend  the  free  list  in  respect  of  those  things 
which  were  not  produced  here ;  and  the  other  was  to 
reduce  the  duties  on  all  things  without  reference  to  the 
situation  of  the  domestic  producer.  The  former  way  was 
advocated  by  those  in  favor  of  governmental  protection 
to  the  manufacturing  classes,  and  the  other  was  advocated 
by  their  opponents. 

Many,  however,  entertained  the  opinion,  now  that  the 
national  debt  was  nearly  paid,  that  expenditures  in  sev- 
eral wa3-s  ought  to  be  considerably  augmented.  McLane 
voiced  this  opinion  when  he  affirmed  that  there  were  other 
objects  of  expenditure  of  obvious  expediency,  if  not  of 
indispensable  necessity,  which  it  might  be  supposed  had 
been  postponed  by  the  higher  obligation  of  paying  the 
public  debt.  The  present  occasion,  he  added  in  his  report 
for  1831,  was  deemed  propitious  to  provide  for  these 
objects  hi  a  manner  to  advance  the  glory  and  prosperity 
of  the  country  without  inconvenience  to  the  people. 

Beside  the  usual  expenditures,  he  recommended  appro- 
priations for  augmenting  the  navy  and  army,  improving 
the  armories,  arming  the  militia  of  the  several  States,  in- 
creasing the  pay  and  emoluments  of  the  navy  officers  to 
an  equality  with  those  of  the  army,  and  providing  them 
with  the  means  of  nautical  instruction,  enlarging  the  navy 


542      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1831. 

hospital  fund,  strengthening  the  frontier  defences,  remov- 
ing obstructions  from  the  Western  waters,  also  for  mak- 
ing accurate  and  complete  surveys  of  the  coast,  and 
improving  the  coast  and  harbors  in  order  to  afford  greater 
facilities  to  the  commerce  and  navigation  of  the  United 
States.  He  added,  moreover,  that  the  occasion  was  favora- 
ble for  constructing  custom-houses  and  warehouses  in  the 
principal  commercial  cities,  in  some  of  which  they  were 
indispensably  necessary  for  the  purposes  of  revenue,  the 
permanent  accommodation  of  the  courts  of  the  United 
States  and  their  offices.  There  was  need,  too,  he  con- 
tended, of  increasing  the  compensation  of  the  of6cers  of 
the  customs,  and  the  salaries  of  foreign  ministers.  An 
extension  of  the  public  buildings  at  Washington  was  also 
recommended,  as  well  as  further  provision  for  the  officers 
and  soldiers  of  the  Revolution.  From  this  time  onward 
the  expenditures  for  many  of  these  objects  were  enlarged. 
The  revenues  were  copious ;  and  during  the  first  term  of 
President  Jackson's  administration,  notwithstanding  the 
branching-out  in  modes  of  expenditure,  there  was  not 
much  wastefulness,  except  in  the  post-office  department. 

Mutterings  were  heard,  though,  of  a  storm  which  was 
to  sweep  over  the  country  with  the  swiftness  and  violence 
of  a  tornado,  and  from  the  effects  of  which  the  country 
was  to  suffer  for  many  years.  The  President  had  deter- 
mined to  remove  the  deposits  from  the  United-States 
bank,  and  to  prevent  a  renewal  of  its  charter.  No  other 
President  had  ever  taken  such  an  active  part  in  the  man- 
agement of  the  fiscal  affairs  of  the  country.  Former 
Presidents  had,  indeed,  expressed  their  views  in  official 
messages,  and  vetoed  bills  which  were  deemed  not  con- 


tS35.]  APPROPRIATIONS   AND   EXPENDITUEES.  543 

dueive  to  the  public  welfare  ;  but  Jackson  did  not  stop 
here.  He  proposed  to  remove  the  deposits,  and  destroy 
the  bank ;  and  he  was  not  content  until  he  had  accom- 
plished his  purpose.  His  course  was  not  affected  in  the 
least  by  the  fact  that  the  majority  of  Congress  differed 
from  him.  Having  decided,  he  proceeded  to  execute  his 
decision.  His  imperious  will  knew  no  restraint,  and 
suffered  but  few  defeats.  Never  for  a  moment  did  he 
think  of  going  wrong,  any  more  than  did  Apollo  of  send- 
ing his  shafts  awry. 

It  was  while  serving  his  second  term  that  the  first 
investigation  into  the  administration  of  any  department 
of  the  government  occurred,  bringing  to  light  serious  mis- 
management of  the  public  business ;  but  the  investigation 
of  the  post-office  department,  which  was  undertaken  by 
the  party  in  power,  and  by  whom  it  had  been  managed 
during  the  period  covered  by  the  investigation,  revealed  a 
sorry  state  of  things.  Henry  A.  Wise  of  Virginia  was 
chairman  of  the  committee,  whose  conclusions  were  em- 
bodied in  the  form  of  resolutions,  portions  of  which  we 
will  lay  before  our  readers.^ 

"The  finances  of  this  department  have  hitherto  been  man- 
aged without  frugality,  system,  intelligence,  or  adequate  public 
utility.  Expenses  have  not  been  kept  within  the  limits  of 
income.  Means  have  not  been  proportioned  to  the  ends  sought 
to  be  attained;  expenditures,  to  the  benefits  to  be  purchased. 
The  records  of  the  department  in  this  vital  particular  have  not 
been  kept  with  method  and  accuracy,  for  the  data  they  furnish 
conduct  to  widely  ^'arying  results.  The  accounts  of  the  re- 
ceipts, expenditures,  and  losses  of  the  department,  do  not,  in 
1  Feb.  13,  1835,  No.  103,  23  Cong.,  second  session. 


544      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1835. 

fact,  illustrate  with  certainty  the  actual  fiscal  condition  of  the 
department. 

"  The  negligent  and  unsystematic  form  of  making  and 
preserving  mail  contracts  is  such  that  no  human  mind  can 
comprehend  the  whole,  and  maintain  in  order  so  vast  and  com- 
plicated a  machine  as  the  general  post-offlce.  The  contracts 
are  now,  and  have  at  all  times  which  have  fallen  under  the 
observation  of  the  committee  been,  most  loosely  constructed. 
It  is  occasionally  impossible  to  penetrate  their  obscurity,  often 
difficult  to  decipher  their  interlineations  and  marginal  notes, 
and  always  to  be  doubted  whether  they  are  so  framed  and  exe- 
cuted as  to  be  available  in  law.  Knowledge,  if  acquired,  is  to 
be  obtained  rather  from  those  who  keep  the  books  than  from 
the  books  themselves;  and  the  consequence  is,  that  the  loss  of 
the  book-keeper  is  the  extinction  of  all  certain  light. 

"The  mode  of  preparing  advertisements  for  mail  contracts 
has  practically  inverted  the  ends  of  the  law  which  enjoined 
it.  The  practice  of  granting  extra  allowances  has  at  various 
dates  in  the  history  of  this  department  run  into  wild  excesses, 
—  some  illegitimate,  and  therefore  without  an  apology;  and 
others  legitimate,  but  very  questionable  as  to  their  expediency. 
Among  its  other  achievements,  it  has  signalized  most  emi- 
nently the  too  ready  faith  and  too  loose  business  method  of  the 
department.  The  letter  of  a  contractor,  suggesting  an  improve- 
ment, and  soliciting  an  extra  allowance,  not  infrequently  has 
served  the  double  office  of  an  authority  for  the  grant,  and  of  a 
record  of  its  existence.  Some  dark  corner  of  a  contract,  or 
loose  scrap  of  paper,  is  commonly  the  only  official  evidence  of 
the  order  for  large  disbursements  of  money,  under  the  name  of 
extra  allowances.  It  is  a  puzzling  problem  to  decide  whether 
this  discretionary  power,  throughout  its  whole  existence,  has 
done  most  mischief  in  the  cliaracter  of  impostor  upon  the 
department,  or  seducer  to  contractors." 


1836.]  APPROPRIATIONS    AND   EXPENDITURES.  545 

The  committee  did  not  attempt  to  ascertain  how  much 
the  government  had  lost  from  banishing  economy,  and  by 
fraudulent  management  of  the  postal  department.  The 
people  were  shocked  by  the  revelation ;  yet  it  was  only 
the  prelude  to  a  long  chapter  of  shameful  misgovern- 
ment,  passages  from  which  will  soon  be  put  before  the 
reader. 

Although  the  duties  had  been  diminished  by  the  tariff 
Act  of  1833,  the  payment  of  the  public  debt  had  cut  the 
expenditures  so  low,  notwithstanding  their  enlargement 
in  several  ways,  that  the  revenue  accumulated  in  the 
treasury.  The  chief  cause  of  the  accumulation  was  the 
sale  of  public  lands.  In  the  beginning,  this  portion  of 
the  public  revenue  was  pledged  for  the  payment  of  the 
debt,  and  the  pledge  was  faithfully  observed.  When 
Gallatin  was  at  the  head  of  the  treasury  department,  he 
matured  a  plan  for  selling  the  public  lands  which  was  fol- 
lowed for  many  years.  Though  a  steady  stream  of  money 
flowed  into  the  treasury  from  this  quarter,  it  was  not 
large  until  the  era  of  speculation  in  the  days  of  Jackson. 
The  sales  were  never  one  million  acres  a  year  until  1815. 
During  the  period  from  1816  to  1819  the  income  from  the 
sales  amounted  nearly  to  thirty  million  dollars :  during 
the  next  three  years,  however,  the  sales  hardly  exceeded 
four  millions.  The  rise  in  the  price  of  cotton  from  twen- 
ty-six to  thirty-four  cents  per  pound  induced  larger  pur- 
chases ;  exceeding  two  million  acres  in  1817,  and  more 
than  five  and  a  half  million  acres  two  years  afterward. 
By  the  fall  of  nearly  half  in  the  price  of  cotton  in  1820, 
combined  with  other  causes,  land-purchasers  were  left  in 
debt  to  the  government  over  twenty-two  million  dollars; 


546      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1835. 

and,  with  a  change  from  the  credit  to  the  cash  system, 
sales  were  reduced  to  much  less  than  a  million  acres  an- 
nually. In  1821  purchasers  were  so  troubled  to  discharge 
their  obligations,  Congress  provided,  that,  instead  of  pay- 
ing the  balances  due,  they  might  acquire,  if  they  desired, 
an  absolute  title  to  a  portion  of  the  land  purchased, 
which  should  be  determined  by  the  price  and  the  amount 
paid  thereon,  on  condition  of  relinquishing  their  owner- 
ship to  the  remainder.^  Nearly  six  million  acres  reverted 
to  the  government ;  and  the  sales  fell  below  a  million  acres 
yearly  until  the  rise  of  cotton  in  1825,  which  gave  a  new 
impulse  to  land-buying.  Aided  by  other  powerful  causes, 
the  sales  gradually  enlarged  until  they  exceeded  a  million 
acres,  in  1829.  Afterward  they  swelled  more  rapidly; 
amounting  to  3,856,227  acres  in  1833,  and  4,658,218  acres 
the  following  year.^ 

In  the  next  two  years  32,639,348  acres  were  sold. 
These  were  surprising  figures.  In  1837  the  sales  fell  to 
5,601,103  acres.^  In  the  last  three  years  they  had  been 
larger  than  for  the  forty-five  years  which  had  elapsed  since 
the  adoption  of  the  Constitution.  With  this  unexpected 
addition  to  the  receipts,  a  large  surplus  accumulated  in 
the  treasury. 

Yet  appropriations  were  granted  on  a  very  enlarged 
scale.     Some    were   permanent:    others   were  temporary. 

1  Act,  March  2,  1821,  16  Cong.,  second  session,  chap.  12.  Crawford's 
Com.  to  Senate,  March  27,  1818,  3  Finance,  p.  263. 

2  Walker  said  in  1845  that  the  average  annual  sales  had  been  much  less 
than  two  million  acres,  yet  the  aggregate  net  proceeds  of  the  sales  in  1834, 
'35,  '36,  and  '37,  were  ?!51 ,268,617.82.  See  Cambreling's  Report  from  Com. 
of  Ways  and  Means,  July  1,  1836,  No.  851,  24  Cong.,  first  session. 

8  Johnson's  valuable  report  on  Relief  of  the  States,  No.  296,  27  Cong., 
tliird  session. 


1836.]  APPROPRIATIONS    AND    EXPENDITURES.  647 

Of  the  former  kind  were  additional  grants  for  legislative 
purposes,  the  gradual  augmentation  in  appropriations  for 
the  judiciary  and  the  salaries  of  district  judges,  the  new 
bureau  of  the  solicitor  of  the  treasury,  the  corps  of 
mounted  dragoons  in  the  army,  an  increased-  number  of 
army  and  navy  officers  to  whom  a  larger  compensation 
was  granted,  and  extra  compensation  to  officers  of  the 
customs  after  the  reduction  of  the  tariff.  The  chief  new 
items  of  temporary  expenditure  were  an  increase  for  ex- 
tinguishing Indian  titles  and  grants  of  Revolutionary  pen- 
sions, the  payment  of  the  Virginia  commutation  claims, 
large  additions  to  lighthouses  and  custom-houses,  the 
opening  of  many  new  roads  in  the  Territories,  continua- 
tion of  the  Cumberland  road,  improving  navigation,  and 
other  expenditures  of  a  similar  nature. 

Notwithstanding  these  expenditures,  the  available  bal- 
ance in  the  treasury  on  the  1st  of  January,  1836,  beside 
all  outstanding  appropriations,  was  about  ten  and  a  half 
millions.  "An  unprecedented  spectacle  was  thus  pre- 
sented to  the  world,  of  a  government,  not  only  virtually 
without  any  debts  and  without  any  direct  taxation,  but 
with  about  one-fourth  of  its  whole  annual  expenses  de- 
frayed from  sales  of  its  own  unencumbered  and  immense 
tracts  of  public  lands,  and  no  resort  to  even  indirect  tax- 
ation necessary,  except  for  the  other  three-fourths ;  and 
the  proceeds  of  that  taxation,  though  largely  and  fre- 
quently reduced,  3et  accumulating  so  fast  as  to  require 
further  legislation  to  dispose  of  or  invest  a  considerable 
surplus  on  hand.  Whether  this  state  of  enviable  prosper- 
ity be  justly  attributable  to  the  form  of  our  government, 
to  the  administration  of  it,  to  the  character  of  our  people, 


548      FENANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1837. 

to  the  physical  advantages  of  our  country,  or  to  all  com- 
bined, it  was  a  matter  of  strong  congratulation,"  said  the 
secretary  of  the  treasury,  "  and  exhibited  a  very  remark- 
able phenomenon  in  the  history  of  taxation  and  finance. 
Without  dwelling  on  these  primary  causes  of  our  fortunate 
condition,  or  discussing  any  secondary  ones,  such  as  the 
great  demand  and  reward  in  this  country  for  either  labor 
or  capital,  the  more  appropriate  inquiry  under  these  novel 
circumstances  seemed  to  be  to  discover  the  most  judicious 
course  to  pursue  in  using  this  surplus,  and  in  preventing 
and  regulating  its  future  accumulation."  Woodbury  then 
proceeded  to  consider  modes  for  disposing  of  the  surplus. 
One  mode  was  to  extend  the  system  of  internal  improve- 
ments. He  also  considered  the  expediency  of  reducing 
the  revenues.  Nothing  was  done  at  that  session ;  but  the 
next  year,  when  Congress  met,  the  surplus  had  risen  to  a 
very  large  sum,  and  there  was  an  elaborate  discussion 
respecting  it.  Finally  it  was  decided  to  invest  all  beside 
the  sum  of  five  millions  in  the  treasury  on  the  1st  of 
January,  1837,  with  the  States,  in  certain  proportions, 
determined  by  their  population.  The  balance  thus  ap- 
plicable at  the  time  fixed  was  137,468,819.97,  one-quarter 
of  which  was  to  be  paid  at  the  end  of  every  third  month.^ 
The  first  three  quarters  were  promptly  paid ;  but, 
before  the  fourth  was  payable,  a  fiprce  financial  storm 
swept  over  the  country,  reckoning-day  had  suddenly  come, 
and  the  nation  sorrowfully  realized  that  it  owed   many 

1  "Woodbury  remarked  with  reference  to  this  distribution,  in  his  annual 
report  at  the  end  of  1839,  that  it  tempted  the  States  in  several  instances  to 
new  and  unprofitable  enterprises,  and  stimulated  delusive  hoises  of  still 
further  distributions. 


1837.]  APPROPRIATIONS    AND    EXPENDITURES.  549 

millions  abroad  for  imported  goods,  with  nothing  to  pay 
for  them.  Credit,  which  had  been  blown  into  enormous 
dimensions  by  the  State  banks,  quickly  vanished ;  nearly 
all  these  institutions  which  had  been  so  carefully  keeping 
the  government  deposits  failed ;  and  the  merchants  who 
owed  many  millions  for  duties  were  unable  to  pay.  The 
treasury,  which  shortly  before  had  been  so  gorged  with 
money  that  it  could  find  no  way  to  spend  it,  and  had 
been  emptying  its  treasures  into  the  State  laps,  suddenly 
found  itself  on  the  verge  of  bankruptcy.  And  all  these 
things  happened  within  nine  months  from  the  time  when 
a  surplus  of  more  than  forty  millions  was  lying  in  the  treas^ 
ury.  What  a  humiliating  position !  The  government 
could  no  longer  think  of  paying  any  more  to  the  States : 
the  question  was,  how  could  the  ship  of  state  be  shoved 
off  from  the  rocks  where  she  was  so  badly  thumping. 

Congress  convened  the  4th  of  September,  1837,  and 
the  secretary  of  the  treasury  rehearsed  the  dismal  story. 
The  receipts  had  rapidly  shrunk.  Not  only  were  the  im^ 
ports  less,  but  payment  of  duties  already  due  was  deferred 
in  compliance  with  the  wishes  of  the  importers,  most  of 
whom  were  embarrassed.  The  secretary  reminded  Con- 
gress, that,  before  submitting  his  last  annual  report,  he  saw 
indications  of  a  decrease  in  the  receipts,  and  of  an  ap- 
proaching revulsion  in  our  commercial  prosperity,  and  for 
this  reason  estimated  the  accruing  receipts  for  the  year  at 
only  twenty-four  million  dollars.  "  As  the  appropriations 
asked  for  were  about  twent3'-seven  million  dollars,  it  was 
then  suggested  that  the  occurrence  of  a  deficiency  was 
probable.  When  those  appropriations  became,  in  fact, 
enlarged   by  Congress   to   more    than  thirty-two  million 


650      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1837. 

dollars,  it  rendered  a  deficiency  inevitable  to  the  extent 
now  anticipated,  unless  the  receipts  should  happen  greatly 
to  exceed  the  estimates,"  —  an  event  which  did  not  occur. 

Of  course,  the  secretary  could  not  pay  the  last  instal- 
ment of  the  deposit  due  to  the  States.  On  the  other 
hand,  he  declared  "  there  would  probably  be  a  necessity 
to  resort  to  the  deposits  now  with  the  States,  and  to  the 
instalments  destined  for  them  in  October,  or  to  some 
other  resource,  for  a  sum  equal  to  ten  million  dollars." 
Such  was  the  melancholy  condition  of  the  treasury.  How 
sudden  and  great  was  the  change  from  overflowing  abun- 
dance ! 

What  were  the  measures  proposed  and  adopted  to  extri- 
cate the  treasury  from  the  mire  ?  First,  Congress  enacted 
a  law  authorizing  the  secretar}^  of  the  treasury  to  with- 
hold the  payment  of  the  fourth  instalment  of  the  deposit 
to  the  States ;  ^  secondly,  importers  were  given  more  time 
to  pay  their  bonds ;  ^  thirdly,  treasury-notes  were  author- 
ized for  a  sum  not  exceeding  ten  million  dollars  in  antici- 
pation of  the  revenues.^  The  secretary  proposed  the 
issue  of  two  kinds,  the  latter  bearing  interest,  and  tho 
former  not.  A  few  years  afterward,  treasury-notes  were 
issued,  bearing  an  insignificant  rate  of  interest ;  but  the 
action  of  the  secretary  of  the  treasury  in  issuing  them 
was  condemned  as  unconstitutional.  But  Congress  did 
authorize  the  issue  of  notes  carrying  six  per  cent  interest ; 
and  with  this  aid  the  government  was  able  to  discharge 
its  obligations. 

1  Act,  Oct.  2, 1837,  25  Cong.,  first  session,  chap.  1. 

2  Act,  Oct.  16,  18">7,  25  Cong  ,  first  session,  chap.  8. 
8  Act,  Oct.  12,  1837,  25  Cong.,  first  session,  chap.  2. 


1837.]  APPROPRIATIONS   AND   EXPENDITURES.  551 

The  wisdom  of  providing  for  the  early  and  final  re- 
demption of  these  notes  was  not  clearly  and  strongly  set 
forth,  as  it  should  have  been,  by  the  secretary  of  the 
treasury,  when  recommending  their  issue.  He  recom- 
mended, that,  when  the  money  on  hand  available  for 
public  purposes  exceeded  a  given  amount  (four  or  five 
millions),  the  excess  ought  to  be  applied  toward  redeem- 
ing these  notes,  unless  they  should  be  needed  to  defray 
current  expenses  ;  but  Congress  simply  declared  that  they 
should  be  payable  one  year  from  date,  and  should  not 
bear  interest  beyond  that  time. 

The  banks  having  suspended  specie  payments,  a  very 
perplexing  question  arose  with  respect  to  receiving  their 
notes  for  debts  due  to  the  government.  Although  specie 
was  the  best  standard,  "  and  the  only  one  contemplated 
by  the  constitution,"  Hamilton,  very  early  in  the  history 
of  the  government,  issued  an  order  to  the  collectors  of 
public  money,  authorizing  them  to  receive  bank-notes  in- 
stead of  specie ;  but  with  improvements  in  communica- 
tion, increased  facility  in  exchanges,  and  diminished  dis- 
tance between  points  of  collection  and  expenditure,  the 
use  of  notes  to  aid  in  public  transfers  became  unneces- 
sary. Most  of  the  duties  on  imports  were  discharged  in 
checks  on  the  bank  where  the  bonds  were  deposited  for 
collection,  or  in  its  own  notes,  and  very  infrequently  in 
those  of  banks  at  any  distance ;  consequently  not  much 
embarrassment  had  ever  arisen  in  paying  duties  with 
bank-notes.  In  accepting  them  for  lands,  however,  the 
situation  of  purchasers  and  receivers  was  so  remote,  that 
difficulties  frequently  occurred;  and  the  regulations  about 
receivino;  them  were  chano^ed  when  the  United-States  bank 


552      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1837. 

and  its  brandies,  and  also  the  State  banks,  were  em- 
ployed as  depositories.  In  the  mixed  system  of  currency 
that  now  prevailed,  and  which  was  everywhere  interwo- 
ven with  the  business  of  the  country,  it  was  very  incon- 
venient entirely  to  avoid,  and  occasionally  dangerous  to 
permit,  taking  the  bills  of  any  State  bank  for  lands ;  and 
the  receipt  of  such  notes  was  necessarily  restricted,  or  a 
risk  was  incurred  of  making  many  imperfect  arrange- 
ments, and  causing  some  injuries  to  the  treasury. 

The  secretary  prescribed  various  remedies,  one  of  which 
was  that  certificates  not  bearing  interest,  but  payable  in 
specie  to  the  bearer  or  to  order,  and  receivable  for  all 
public  dues,  should  be  authorized,  and  given  in  payment 
to  the  public  creditor  whenever  preferred  by  him,  and 
sufficient  specie  existed  in  the  treasury.  "  This  kind  of 
paper,"  he  declared,  "  would  be  very  convenient  in  form, 
and  would  differ  little  from  the  drafts  now  in  use  on 
banks,  except  being  drawn  on  a  known  specie  fund,  and 
expressing  on  its  face  not  only  this,  but  its  being  receiva- 
ble in  the  first  instance  for  all  public  dues.  It  would 
possess  the  highest  credit  attainable  in  society."  Several 
other  remedies  of  a  similar  nature  were  mentioned. 

Congress  declined  to  legislate.  After  the  suspension 
of  specie  payments,  no  bank-notes  were  received  by  the 
government  not  redeemable  in  specie.  The  secretary 
having  declared  that  he  should  not  change  his  policy  in 
this  regard,  unless  Congress  otherwise  ordered,  that  body 
left  him  alone  to  guide  the  treasury  through  these  per- 
plexing obstacles,  doubtless  believing  they  could  render 
no  real  assistance. 

The  public  revenues  now  fluctuated  in  a  most  astonish- 


1837.]  APPROPRIATIONS   AND   EXPENDITURES.  553 

ing  manner.  Not  only  were  those  from  land  enormojisly 
diminished,  but  also  those  from  imports.  Well  might 
Woodbury  remark,  in  his  annual  report  for  1836,  of  "  the 
intrinsic  difficulties  in  attaining  much  certainty  concern- 
ing them  during  crises  of  overaction  and  revulsions  like 
the  past  and  the  present." 

In  that  report  he  repeated  several  recommendations 
which  merit  brief  mention  in  this  place. 

First,  That  contingent  authority  be  given  to  some 
appropriate  officer  to  invest  safely  any  considerable  sur- 
pluses which  should  casually  occur  in  the  receipts  beyond 
the  expenditures,  and  to  dispose  of  such  investments  when 
deficiencies  might  happen  requiring  it. 

Secondly,  That  limited  power  be  granted  to  issue  treas- 
ury-notes for  temporary  purposes  when  deficiencies  hap- 
pened and  no  surpluses  existed,  and  to  redeem  them  as 
soon  as  there  was  a  surplus  in  the  treasury.  Beside 
other  obvious  reasons  in  favor  of  such  a  regulation,  it 
would  enable  the  department  to  administer  the  finances 
with  at  least  two  or  three  millions  less  in  the  treasury 
than  would  otherwise  be  needed. 

Thirdly,  That  the  additional  duties  of  general  deposito- 
ries be  imposed  on  all  receivers  and  collectors  of  public 
money,  officers  of  the  mint  and  its  branches,  and  the 
treasurer. 

Fourthl}',  That  permission  be  given  to  receive  payment 
in  advance  for  the  public  lands  at  such  places  as  the 
treasury  department  might  appoint. 

Fifthly,  The  extension  of  the  warehouse  system,  and 
the  requiring  of  all  duties  to  be  paid  on  imports  when 
they  were  taken  therefrom  for  consumption.     This  change, 


554      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1837. 

though  less  urgent,  Woodbury  declared,  was  very  desira- 
ble in  respect  of  the  collection  and  security  of  the  most 
important  portion  of  the  public  revenue. 

There  was,  indeed,  great  need  for  adopting  some  of  these 
recommendations.  The  country  owed  nothing  to  absorb 
a  surplus,  if  any  should  accrue.  Nor  was  there  an  ade- 
quate supply  of  banking  institutions  to  provide  a  sound 
circulating  medium  for  the  needs  of  business,  or  to  com- 
mand the  general  confidence  in  their  ability  to  keep, 
disburse,  and  transfer  the  public  funds  in  a  satisfactory 
manner.  Daily  did  the  secretary  realize  the  difficulties 
of  conducting  the  business  of  the  treasury  without  these 
agencies  ;  but  Congress  disregarded  his  recommendations. 

What,  indeed,  could  be  plainer  than  that  the  govern- 
ment, while  the  present  system  of  public  revenue  existed, 
—  which  worked  so  fitfully,  that,  in  1834,  twenty-one 
million  dollars  were  collected,  and  two  years  later  more 
than  twice  as  much,  and  the  year  afterward  only  nineteen 
million  dollars,  —  required  a  reservoir  for  retaining  the 
excess  of  revenue  during  years  of  plenty,  in  order  to  draw 
therefrom  in  times  of  financial  drought  ?  The  subject  was 
discussed,  but  no  plan  was  adopted.  The  investment  of 
a  part  of  the  surplus  in  State  stocks,  in  the  mode  success- 
fully practised  with  respect  to  money  belonging  to  the 
Indians,  had  been  recommended  by  the  secretary  of  the 
treasury  in  1836.  Congress  preferred  another  plan.  This 
was  to  deposit  the  surplus  with  the  States  for  safe  keep- 
ing, investing  the  secretary  of  the  treasury  with  power  to 
recall  it  whenever  he  pleased.  It  was  kept  there  so  safely, 
that  the  ver\-  next  year,  when  the  necessity  arose  for  de- 
manding it.  Congress  passed  an  Act  forbidding  the  secre- 


1838.]  APPIiOPEIATIONS    AND    EXPENDITURES.  555 

taiy  from  making  such  a  request.  Instead  of  recovering 
this  money,  which  was  at  first  intended  to  be  merely  a 
deposit  with  the  States,  Congress  authorized  the  issue  of 
treasury-notes.  The  payment  of  the  fourth  instahiient 
of  the  deposit  was  deferred  from  time  to  time,  and  finally 
was  prohibited.  Authority  to  sell  the  bonds  of  the  United- 
States  bank  was  next  given. 

These  measures  were  very  inadequate.  Woodbury  re- 
minded Congress,  at  the  close  of  1838,  that  since  the 
extinguishment  of  the  national  debt,  and  within  the  last 
three  years,  the  policy  of  Congress  had  been  to  avoid  a 
large  balance  in  the  treasury  immediately  available,  which, 
if  unemployed  for  the  public  service,  was  regarded  as 
taken  from  the  circulation  of  the  country,  and  in  some 
degree  hoarded,  though  deposited  in  banks  which  made 
the  public  money  the  basis  of  enlarged  operations.  There 
was  need  of  a  system  whereby  the  government  could  get 
money  whenever  the  payments  exceeded  the  receipts. 
How  fluctuating  both  were,  Woodbury  well  illustrated  by 
the  events  of  that  year.  In  January  the  expenditures 
were  about  i!l,800,000,  and  in  May  only  |'2,242,000 ; 
but  in  July  they  exceeded  14,500,000,  —  an  increase,  in  a 
single  month,  of  nearly  two  millions  and  a  third,  or  more 
than  enough  to  sweep  off  in  thirty  days  the  whole  balance 
on  hand.  Consequently,  at  any  period,  with  only  a  million 
or  two  in  the  treasury,  and  with  receipts  of  less  than  two 
millions  monthly,  it  was  obvious  that  the  public  engage- 
ments could  not  all  be  punctually  met,  unless  some  power 
should  exist  to  provide  for  calls  so  unequal  in  different 
portions  of  the  year,  and  also  in  different  years. 

Congress    very    tardily    prescribed    a    remedy.      The 


556      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1838. 

independent  treasury  was  finally  established :  but,  in  doing 
this,  one  of  the  principles  for  which  Congress  contended 
was  overthrown ;  namely,  the  keeping  of  the  largest 
amount  of  the  public  funds  possible  in  circulation.  The 
establishment  of  the  independent  treasury  took  the  largest 
amount  possible  from  those  channels :  indeed,  it  took  all 
except  the  sums  actually  required  for  making  payments. 
The  only  way  devised,  of  providing  sufficient  funds  to  pay 
the  debts  of  the  government,  was  to  issue  treasury-notes 
when  there  was  a  dearth  of  income. 

Notwithstanding  the  enormous  shrinkage  in  revenues, 
public  expenditures  were  reduced  very  slowly.  In  every 
annual  report,  Woodbury  pleaded  for  a  reduction.  It  is 
true,  his  words  did  not  have  the  ring  of  Dallas.  They  were 
feeble,  yet  the  need  for  the  practice  of  greater  economy 
was  evident  without  special  pleading  by  any  one.  The 
blindest  legislator  knew  how  heavily  the  revenues  had 
shrunk,  and  hence  the  need  there  was  of  retrenchment  in 
the  public  expenditures.  But  however  pressing  the  need, 
Congress  acted  slowly  in  retrenching.  They  were  re- 
duced somewhat;  but  Woodbury,  cautious  as  he  was, 
declares  in  his  final  report  that  he  had  "  earnestly  urged  a 
more  rapid  reduction."  When  the  debt  was  paid,  as  we 
have  seen.  Congress  raised  the  gates  of  expenditure  much 
higher ;  and,  having  once  set  the  flood  loose,  barriers  could 
not  be  easily  placed  before  it. 

Bad  enough  were  these  things :  but  still  worse  had 
happened  ;  for  corruption,  foul  and  universal,  Avas  poison- 
ing almost  every  branch,  twig,  and  leaf  of  the  public 
service.  Certainly  in  no  former  period,  and  in  no 
subsequent  one,  has  such  a  vast  mass  of  corruption  in 


1838.]  APPROPRIATIONS    AND   EXPENDITURES.  557 

conducting  the  public  business  been  discovered.  Every 
thing,  almost,  undertaken  by  the  officers  of  the  govern- 
ment, was  saturated  with  it.  Every  contract  and  appro- 
priation seemed  tainted  with  fraud.  It  would  require  too 
much  space  to  describe  these  things,  yet  we  must  briefly 
touch  on  some  of  them. 

Woodbury  himself  was  not  a  partner  in  these  frauds ; 
although  some  of  them  were  committed  so  near  to  him,  that 
one  cannot  help  inquiring  why  he  did  not  discover  them. 
It  may  be  that  he  knew,  but  could  not  screw  himself  up 
to  the  point  of  interfering.  He  was  neither  a  reformer, 
nor  a  believer  in  drastic  remedies.  Though  a  very  indus- 
trious official,  he  lacked  both  conviction  and  courage,  and 
failed  utterly  to  apply  strong  correctives  when  they  were 
needed.  He  was  not  an  Alberoni,  to  stamp  out  bravely 
and  unflinchingly  the  dishonesty  perpetrated  around  him. 
He  seemed  rather  to  partake  of  the  spirit  of  the  states- 
men during  the  time  of  Louis  XV.,  who  looked  out  well 
for  themselves,  expecting  afterward  the  deluge  ;  for  Wood- 
bury knew  well  enough  that  the  storm  would  come.  Un- 
happily for  him,  it  came  before  his  term  of  office  expired. 

There  were  many  who  boldly  tried  to  stem  the  evil 
tide.  They  clearly  depicted  the  evil  consequences  that 
would  inevitably  happen,  but  they  cried  as  though  in  a 
wilderness.  Their  voices  were  not  heard.  In  the  mighty 
roar  for  public  plunder,  those  engaged  therein  thought 
but  little  of  the  future ;  and  they  were  powerful  enough 
to  persuade  the  leaders  generally  to  remain  silent.  But 
the  plunderers  were  few  compared  with  the  whole  number 
of  the  people  ;  and,  however  great  might  be  "  the  cohesive 
power  of  pu})lic  plunder  "  among  the  former  class,  it  could 


558      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1838. 

not  dazzle  the  plundered  :  so,  at  last,  reckoning-day  came , 
and  it  revealed  a  scene  of  thoroughly  organized  corrup- 
tion, on  the  part  of  public  officials,  hitherto  unparalleled. 

Officers  who  had  resigned  from  the  army  and  navy  were 
re-instated  several  years  afterward,  and  drew  full  pay  for 
the  period  when  they  were  not  serving  the  government.^ 
Young  men  were  sent  abroad  professedly  to  study  at  the 
cavalry  school  in  Namur,  France,  but  really  to  travel  at 
public  expense ,  and  the  law  forbidding  the  payment  of 
any  extra  compensation  whatever,  to  military  officers  who 
should  serve  the  government  in  any  other  capacity  than 
a  military  one,  was  violated.  The  secretary  of  war,  Poin- 
sett, sinned  knowingly  and  wilfully  in  allowing  extra  com  • 
pensation  for  services  thus  rendered.  The  expenses  of 
the  Florida  war  vastly  exceeded  all  calculations  in  con- 
sequence of  the  frauds  practised  in  transporting  troops, 
building  and  buying  boats,  and  in  other  ways.  The  his- 
tory of  this  chapter  of  public  misdeeds  was  sorrowfully 
read  by  the  people.  The  final  act  in  the  sad  story  of  the 
removal  of  the  Florida  Indians  was  disgraceful  in  the 
extreme.^  The  secretary  of  war  was  a  guilty  actor  in 
swelling  enormously  the  expenses  of  their  removal,  after 
the  contract  for  performing  the  service  had  been  made, 
and  at  a  high  figure,  too,  which  would  have  amply  re- 
warded the  contractors.  The  contingent  expenses  of  the 
House  during  the  twenty-third  and  twenty-fourth  Con- 
gresses, for  stationery  and  the  like,  were  largely  increased, 
no  small  portion  thereof  going  into  the  pockets  of  the 
editor  of  "  The  Democratic  Review  "  to  pay  for  engraving 

1  Report  No.  459,  27  Cong.,  second  session. 

2  Report  No.  288,  27  Cong.,  third  session. 


1838.]  APPROPRIATIONS    AND   EXPENDITURES.  559 

steel  plates  of  distinguished  democratic  statesmen.  The 
result  of  the  investigation  of  the  Xew-York  custom-house 
was  shocking  to  many.  The  investigation  was  conducted 
by  a  commission,  who  reported  to  the  secretary  of  the 
treasury.  The  House  committee  on  public  expenditures 
sent  a  letter  to  him  for  the  report  as  soon  as  it  was  com- 
pleted, but  there  was  no  answer.  Then  the  House  ordered 
the  secretary  to  send  the  report,  but  he  did  not  heed  the 
order.  The  committee  then  called  on  the  secretary,  but 
received  no  reply  to  their  inquiries  concerning  the  docu- 
ment. Finally  they  called  on  Poindexter,  one  of  the 
commissioners,  to  submit  the  result  of  his  investigations 
to  the  House,  with  which  request  he  comi^lied.  Having 
examined  it,  the  committee  declared,  "  It  is  believed  that 
the  wickedness  of  public  officers  here  exposed  is  unparal- 
leled in  the  history  of  any  civilized  government."  ^ 

Useless  offices  were  multiplied.  The  origin  of  many  of 
these  is  interesting.  A  new  duty,  perhaps,  was  imposed 
on  a  legally  constituted  officer,  who  appointed  an  agent  to 
perform  it.  The  latter  was  paid  from  a  contingent  fund, 
or  by  a  specific  appropriation.  This  practice  was  contin- 
ued for  a  time.  Then  the  salary  of  the  agent,  by  design  or 
accident,  was  incorporated  into  an  appropriation  bill ;  and 
thus  a  sort  of  half-legal  existence  was  given  to  the  office, 
while  the  officer  continued  to  hold  it  long  after  the  object 
for  which  he  was  appointed  had  passed  away. 

Many  public  buildings  were  erected  during  this  period. 
In  the  beginning,  Congress  enacted  that  the  entire  sum 
for  building  them  should  not  exceed  a  certain  figure ;  but 
the  enactment  was  speedily   forgotten,  and  appropriations 

1  Report,  April  28,  1842,  No.  669,  27  Cong.,  second  session. 


560      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1838. 

were  made  from  year  to  year,  even  after  the  plethoric 
condition  of  the  treasury  had  ceased.  The  superintend- 
ent of  the  branch-mint  at  Charlotte,  N.C.,  proposed  to 
make  himself  as  comfortable  as  possible  ;  and  so  he  built, 
at  public  expense,  an  ice-house,  a  summer-house,  and  a 
bath-house.  A  committee  who  investigated  the  matter 
remarked,  that,  not  perceiving  the  connection  these  build- 
ings had  with  coining  gold,  they  were  forced  to  the  con- 
clusion that  the  branch-mint  in  its  operations  had  added 
more  to  the  comfort  of  the  superintendent  than  to  the 
promotion  of  the  public  good.  It  is  true,  that,  when  the 
account  reached  the  treasury  department,  it  was  sus- 
pended for  examination.  "  It  seemed  a  little  too  large ;  " 
but,  when  the  secretary  learned  from  the  superintendent 
that  what  he  had  done  was  "  an  error  of  honest  patriot- 
ism," the  explanation  was  satisfactory,  and  the  account 
was  allowed.^ 

During  Van  Buren's  administration  a  large  sum  of 
money  was  spent  in  furnishing  the  White  House ;  and 
the  law  requiring  that  all  furniture  purchased  for  it, 
so  far  as  practicable,  should  be  of  American  or  domestic 
manufacture,  was  grossly  violated.  Enormous  quantities 
of  mail-bags  and  other  supplies  for  the  post-office  depart- 
ment, greatly  in  excess  of  the  wants  of  the  government, 
were  ordered  at  high  prices  as  a  reward  for  political  ser- 
vices during  the  presidential  campaign  of  1836.2  During 
the  Indian  wars  the  officers  of  the  army  received  higher 
pay  in  the  way  of  commutation  for  fuel  and  quarters, 
though  there  was  no  authority  to  justify  such  an  increase 

1  Report  No.  18,  2G  Cong.,  second  session. 

2  Report  No.  989,  27  Cong. ,  second  session. 


1S39.]  APPROPRIATIONS   AND   EXPENDITURES.  561 

by  the  secretary  of  war.^  President  Jackson,  too,  sinned 
in  the  same  manner  by  increasing  the  salary  of  the  com- 
missioner of  pubhc  buildings;  and  Van  Buren  continued 
the  practice  until  1839,  when  Congress  finall}'  accumu- 
lated enough  virtue  and  courage  to  prohibit  him  from 
paying  the  commissioner  any  more  than  the  law  specified.^ 
Amos  Kendall,  the  postmaster-general,  sent  George  Piatt 
to  Europe  to  get  information  relating  to  the  postal  sys- 
tems of  various  countries.  His  salary  was  two  thousand 
dollars,  and  sixteen  dollars  and  eighty-eight  cents  per  day 
were  allowed  for  expenses.  He  was  gone  four  hundred 
and  fifty-seven  days,  and  doubtless  enjoyed  his  trip  better 
than  many  others  did  the  history  of  it.  There  was  no  au- 
thority for  sending  him,  — no  appropriation  had  been  made 
for  the  purpose ;  but  Kendall,  who  was  one  of  President 
Jackson's  devoted  adherents,  persuaded  the  President  to 
order  a  transfer  of  eight  thousand  dollars  from  another 
aj)propriation  to  the  appropriation  for  "mail  depreda- 
tions and  special  agents,"  under  which  head  the  account 
was  paid.  A  committee  of  investigation  declared  there 
was  no  excuse  for  such  an  abuse  of  power,  and  wanton 
waste  or  misapplication  of  the  public  money :  there  were 
no  services  rendered  in  obtaining  information  which  could 
not  have  been  performed  by  the  regularly  authorized 
ministers  of  the  United  States  in  the  countries  through 
which  Mr.  Piatt  tra veiled. ^ 

There  was  a  very  elaborate  investigation  into  the  ad- 
ministration of  the  executive  departments  in  the  winter 

1  Report  No.  288,  27  Cong.,  third  session. 

2  Report  No.  460,  27  Cong.,  second  session. 

3  Report  No.  487,  27  Cong.,  second  session. 


562      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1837. 

of  1837.     The  resolutions  were  introduced  into  the  House 
by  Henry  A.  Wise  of  Virginia.^ 

The  committee  organized,  and  sent  two  resolutions  to 
President  Jackson,  which  evidently  made  his  ears  tingle, 
judging  from  his  subsequent  conduct.  The  first  resolved 
that  "the  President  of  the  United  States  be  requested, 
and  the  heads  of  the  several  departments  be  directed,  to 
furnish  this  committee  with  a  list  or  lists  of  all  officers,  or 
agents,  or  deputies,  who  have  been  appointed,  or  employed 
and  paid,  since  the  4th  of  March,  1829,  to  the  1st  of 
December  last  (if  any  without  authority  of  law,  or  whose 
names  are  not  contained  in  the  last  printed  register  of 
public  officers,  commonl}^  called  the  Blue  Book),  by  the 
President,  or  either  of  the  said  heads  of  departments 
respectively,  and  without  nomination  to,  or  the  advice 
and  consent  of,  the  Senate  of  the  United  States ;  show- 
ing the  names  of  such  officers,  agents,  or  deputies,  the 
sums  paid  to  each,  the  services  rendered,  and  by  what  au- 
thority appointed  and  paid,  and  what  reasons  for  such 
appointments."  The  second  resolution  further  declared 
that  the  various  executive  officers,  in  replying  to  the  fore- 
going resolution,  "  be  requested,  at  the  same  time,  to  fur- 
nish a  statement  of  the  period  at  which  any  innovations 
not  authorized  by  law  (if  such  exist)  had  their  origin, 
their  causes,  and  the  necessity  which  has  required  their 
continuance." 

The  reader  who  is  acquainted  with  the  character  of 
President  Jackson  may  readily  divine  how  he  treated 
these  resolutions.  He  replied  very  sharply,  refused  to 
comply  with  the  request  of  the  committee,  and  left  them 

1  Report  No.  194,  24  Cong.,  second  session. 


1836.]  APPROPRIATIONS   AND   EXPENDITURES.  563 

to  grope  for  the  information  desired  as  best  they  could. 
Nevertheless,  they  did  uncover  a  sickening  state  of  things. 
The  presidential  office  had  been  debased  to  low  ends,  and 
its  dignity  had  been  destroyed ;  while  the  integrity  of  its 
occupant,  which  hitherto  no  one  had  questioned,  was  now 
impaired. 

Between  1820  and  1829  the  average   annual  expendi- 
ture for  maintaining  the  government,  beside  paying  the 
interest  and  principal  of  the  debt,  was  thirteen  million 
dollars;  but,  from  the  latter  period  to  1838,  the  average 
rose  to  thirty-two  million  dollars.     While  a  large  portion 
of  this   increase  was  wise   and   honest,  yet,  as  we  have 
shown,  fraud  stalked  around  with  gigantic  strides  in  many 
shapes.     At   no  previous  or  subsequent  period  Lave  de- 
faults been  so  frequent,  or  the  losses  to  the  government  in 
proportion  to  the  receipts  so  great.     Many  of  these  might 
have   been   avoided   had   the   secretary   of  the   treasury 
required  disbursing  officers  to  render  their  accounts  quar- 
terly, in  conformity  to  the  law.     The  guilt  of  an  officer 
who   had  taken  a  small  sum  would  then  have  been  ex- 
posed, and  the  opportunity  of  taking  more  would  have 
been  denied  to  him.     But,  by  permitting  him  to  make  his 
returns  when  he  pleased,  the  way  was  clear  for  defraud- 
ing the  government  of  a  large  amount.     No  wonder  that 
many  profited  in  consequence  of  the  neglect  of  the  secre- 
tary to  enforce  a  wise  law,  by  robbing  the  government. 

The  money  squandered  for  improving  rivers  and  har- 
bors was  very  great.  The  Committee  of  Ways  and  Means 
in  1836,  in  revieAving  the  history  of  these  appropriations, 
criticised  the  "  system  as  expensive  and  yet  feeble,  fluctu- 
ating and  yet  uncertain,  in  all  its  operations  and  results, 


664      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1836. 

unless  it  be  viewed  only  with  reference  to  its  fitness  to 
the  purj30ses  of  the  individual  wealth  and  profit  of  the 
agents  and  contractors  immediately  concerned."  They 
further  said  of  these  undertakings,  "In  most  of  them  a 
very  wide  result  from  the  original  estimates  has  been 
already  exhibited,  and  without  furnishing  a  certain  accom- 
plishment of  the  object  desired  in  any  single  case."  ^  Nor 
were  the  appropriations  subsequently  made  for  this  pur- 
pose rooted  in  greater  wisdom.  No  public  expenditure  at 
any  time  has  yielded  such  meagre  and  unsatisfactory 
re  suits. 2 

1  Reports,  No.  297,  24  Cong.,  first  session;  No.  175,  24 'Cong.,  second 
session. 

2  A  committee  on  public  expemlitures  reported,  in  1842,  concerning  the 
expenditiires  of  this  period.  They  affirm  "  they  are  satisfied  that  extrav- 
agance of  the  most  wilful  character  has  squandered  the  public  money, 
and  that  no  efforts  seem  to  have  been  made,  by  those  who  possessed  the 
power,  to  prevent  it.  The  acts  and  accounts  of  contracting  and  disbursing 
officers  appear  to  have  passed  the  scrutiny  of  those  entitled  to  demand 
accountability,  if  clad  in  the  mere  forms  of  law,  upon  no  higher  evidence 
than  that  of  the  agent  who  performs  the  deed  that  he  has  acted  in  good 
faith,  notwithstanding  his  very  act  creates  a  presumption  to  the  contrary; 
and  even  this  evidence,  frail  as  it  is,  has  not  been  demanded  in  a  vast 
variety  of  cases.  Until  this  system  shall  be  changed,  —  and  with  the  exec- 
utive department  of  the  government  alone  rests  the  power  of  change,  — 
the  people  need  never  hope  for  a  faithful  and  prudent  management  of  the 
finances  of  their  government. 

"  In  each  department,  and  throughout  the  various  ramifications  of  it, 
whether  ciAil  or  military,  whenever  there  was  money  to  be  expended,  the 
most  wilful  extravagance  seems  to  have  followed  the  administration  of 
the  law,  until  the  public  interests  have  been  sacrificed  by  its  influence." 
Instances  are  then  multiplied,  —  dredging  the  Mississippi,  the  Florida  war, 
the  removal  of  the  Indians  from  Florida  (a  transaction  in  which  the 
secretary  of  war  was  badly  implicated).!  Continuing  their  remarks  with 
reference  to  the  expenditures  by  the  different  departments,  the  committee 

1  Report  No.  288,  27  Cong.,  third  session. 


1840.]  APPROPEIATIONS    AND   EXPENDITUEES.  565 

This  is  not  a  pleasing  chapter  in  our  national  history ; 
yet  Woodbury  could  justly  say,  in  his  closing  report,  that, 
while  he  had  held  the  office  of  secretary  of  the  treasury,  — 
notwithstanding  the  heavy  decline  in  imports  (on  two 
occasions  greatly  lessening  the  revenue),  and  other  losses 
sustained  through  officers,  banks,  and  merchants,  and 
notwithstanding  the  biennial  reduction  of  duties,  and  also 
the  remission  of  several  millions  to  railroad  companies 
and  under  new  judicial  constructions,  —  the  income  of 
the  government,  after  all  these  reductions  and  losses,  had 
been  sufficient  to  meet  the  current  expenses  of  the  gov- 
ernment, as  well  as  the  extraordinary  ones  incurred  by 
Indian  wars,  treaties,  and  other  costly  measures,  with- 
out imposing  any  new  taxes  or  higher  tariff,  or  creating 
a  new  funded  debt,  although  there  were  four  million  five 
hundred  thousand  dollars  of  treasury-notes  still  unpaid. 
The  last  of  the  old  funded  debt  had  been  extinguished, 

say  "  they  cannot  indulge  any  other  opinion  than  that  they  have  not  been 
made  in  pursuance  of  the  laws  which  authorized  them,  because  they  are 
wanting  in  economy,  and  regard  for  the  public  welfare.  They  are  not 
apprised,  by  any  evidence  before  them,  that  any  investigation  whatever 
has  been  made,  or  even  any  doubt  expressed,  by  those  before  whose  scru- 
tiny they  had  to  pass,  as  to  their  reasonableness  and  economy.  No  check 
seems  to  have  been  placed  upon  the  will  of  the  contracting  and  disbursing 
officers.  The  presumption  seems  ncA^er  to  have  arisen,  when  prices  so 
greatly  disproportioned  to  the  value  of  the  articles  received  have  been 
paid,  and  which  are  not  allowed  in  the  private  transactions  of  life,  that  the 
public  interest  had  been  jeoparded  by  infidelity,  or  the  want  of  a  proper 
judgment.  Whatever  has  been  expended  seems  to  have  been  allowed; 
and  thus  the  discretion  of  a  subordinate  officer  has  given  law  to  the  scru- 
tiny of  a  high^er  officer.  This  want  of  accountability  has  given  rise  to  tlie 
most  profligate  waste  of  public  money,  and  helped  to  swell  the  enormous 
expenditures  of  the  government  within  a  few  years  past.  —  Report  No.  458, 
27  Cong,  second  session. 


56Q      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.        [1840. 

interest  had  been  paid  on  the  debt  of  fifteen  hundred 
thousand  dollars  assumed  for  the  District  of  Columbia, 
and  a  surplus  of  twenty-eight  million  dollars  had  been 
divided  among  the  States.  The  only  permanent  aid  in 
effecting  this,  beside  the  receipts  from  ordinary  sources, 
was  the  debt  due  from  the  United-States  bank,  of  about 
eight  million  dollars,  which  was  nearly  the  same  amount 
as  the  principal  and  interest  paid  to  extinguish  the  last 
remnant  of  the  Revolutionary  debt. 


1840.]  ACCOUNTING.  667 


CHAPTER    XIV. 

ACCOUNTING. 

Having  reached  the  end  of  the  first  half-century  of 
the  government,  it  is  a  fit  time  to  pick  up  the  thread 
relating  to  the  public  accounts  which  was  started  in  the 
beginning  of  the  present  volume.  Though  the  subject 
may  be  a  very  dry  one  to  the  reader,  its  importance  none 
will  deny.  Did  the  mode  adopted  in  the  beginning  for 
paying  honest  creditors  prove  effective  ?  were  the  de- 
mands of  dishonest  claimants  successfidly  exposed  and 
defeated  ?  did  the  government  wisely  guard  against  mis- 
feasance by  its  own  officers?  —  these,  surely,  are  important 
matters  in  the  history  of  any  country. 

A  committee  on  retrenchment,  in  1842,  remarked  that 
"  the  treasury  department,  as  originally  established,  ap- 
pears to  have  been  well  adapted  to  the  purpose  for  which 
it  was  designed."  ^  Beside  a  chief,  its  officers  originally 
were  a  comptroller,  auditor,  treasurer,  and  register.  The 
comptroller  and  auditor  were  the  only  accounting  officers. 
The  register  simply  recorded  settlements  and  payments, 
and  preserved  accounts  and  vouchers.  The  committee 
declared  that  no  better  scheme  could  have  been  devised 

1  Gilmer's  Report,  May  23,  1842,  No.  741,  27  Cong.,  second  session.  See 
also  Woodbury's  Report  on  Re-organizatiou  of  the  Treasury  in  1834,  and 
Report  of  select  committee  thereon. 


568      FmANCIAL  HISTORY  OF  THE  UNITED  STATES.      [1840. 

to  secure  correctness  in  the  accounts,  and  j^revent  im- 
proper payments  of  money.  ""The  comptroller  acted  as 
a  check  in  both  respects ;  and,  as  there  was  but  a  single 
revision  either  of  the  accounts  or  warrants,  no  unneces- 
sary delay  was  occasioned  in  the  despatch  of  public  busi- 
ness." The  least  necessary  part  of  this  machinery  was 
the  registry  office. 

The  design,  when  organizing  the  government,  was  to 
concentrate  all  accounting  agencies  in  the  treasury  depart- 
ment. Innovations  were  made ;  but  they  were  not  im- 
provements. Said  the  committee  to  which  we  have  just 
referred,  "The  innovations  which  have  been  made  from 
time  to  time  have  not  only  embarrassed  the  system  by 
making  it  more  complicated,  without  increasing  either 
its  responsibility  or  efficiency :  the  complex  system  of  ex- 
penditure and  account  is  one  of  the  greatest  practical 
obstructions  to  economy  and  responsibility  in  the  govern- 
ment. The  departments  at  the  seat  of  government,  in- 
stead of  being  accessible  and  intelligible  to  the  people 
who  come  from  all  quarters  of  the  Union  on  business  with 
them,  are  labyrinths  which  often  perplex  those  most  expe- 
rienced in  their  mazes." 

The  treasury  was  the  receiving  department ,  the  state, 
war,  and  navy  departments  simply-  disbursed  the  public 
money:  while  the  postal  department  performed  both  func- 
tions. 

The  several  chiefs  were  required  to  provide  for  the 
appointment  of  officers  and  agents  in  their  departments, 
for  paying  their  salaries,  for  advancing  the  money  they 
needed  ,  to  direct  the  details  of  service  and  supply,  make 
contracts ,  and,  generally,  to  superintend  the  various  inter- 


1840.]  ACCOUNTING.  569 

ests  confided  to  their  departments,  leaving  the  adjustment 
of  accounts  to  the  accounting  officers,  who,  as  we  have 
seen,  were  connected  with  the  treasury  office.  Regarding 
the  departments  in  this  way,  and  attaching  to  them  the 
officers  who  adjusted  their  accounts,  the  following  arrange- 
ment will  show  how  many  officials  were  employed,  and 
what  were  their  duties :  — 

DEPARTMENT    OF    STATE. 

Administrative  Duties.  —  Secretary  and  fourteen  clerks,  com- 
missioner of  patents  and  eleven  clerks. 

Accounting  Duties.  —  Fifth  auditor  and  nine  clerks. 

WAR    DEPARTMENT. 

Administrative  Duties.  —  Secretary  and  eleven  clerks,  com- 
missioner of  Indian  affairs  and  twelve  clerks,  commissioner  of 
pensions  and  eleven  clerks,  commanding-general,  commissary- 
general,  adjutant-general,  quartermaster-general,  paymaster- 
general,  chief  of  engineers,  colonel  of  topographical  department, 
colonel  of  ordnance  and  forty-five  assistants  and  clerks. 

Accounting  Duties.  —  Second  comptroller  and  ten  clerks, 
second  auditor  and  fifteen  clerks,  third  auditor  and  twenty- 
seven  clerks. 

NAVAL    DEPARTMENT. 

Administrative  Duties.  —  Secretary  and  eight  clerks,  three 
navy  commissioners  and  eight  clerks. 

Accounting  Duties.  —  Fourth  auditor  and  fourteen  clerks. 

POSTAL    DEPARTMENT. 

Administrative  Duties.  —  Postmaster-general,  three  assist- 
ants, and  forty-seven  clerks. 

Accounting  Duties.  —  Sixth  auditor  and  sixty-eight  clerks. 


570      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1840. 
TREASURY    DEPARTMENT. 

Administrative  Duties.  —  Secretary  and  fifteen  clerks,  com- 
missioner of  laud- office,  solicitor  of  laud-office,  recorder  of  laud- 
office  and  seventy-four  clerks,  solicitor  of  the  treasury  and 
three  clerks,  treasurer  and  eleven  clerks,  register  and  twenty- 
one  clerks. 

Accounting  Duties. — First  comptroller  and  fifteen  clerks, 
first  auditor  and  thirteen  clerks. 

The  first  comptroller  was  not  only  an  accounting  offi- 
cer, he  also  superintended  the  customs.  The  commis- 
sioner of  the  land-office  managed  the  public  lands,  and 
adjusted  the  accounts  of  the  receivers  of  money  who  sold 
the  lands.  The  fifth  auditor,  beside  adjusting  accounts, 
superintended  the  lighthouse  establishment. 

The  foregoing  arrangement  represents  the  auditors  as 
connected  with  the  several  departments ;  yet,  in  truth, 
they  were  not.  The  lack  of  a  proper  arrangement  of  the 
accounting  officers  occasioned  much  embarrassment.  The 
fourth  and  sixth  auditors  were  exclusively  and  properly 
confined  to  the  accounts  of  the  naval  and  postal  depart- 
ments ;  while  the  second  and  third  auditors,  with  an 
aggregate  force  smaller  than  that  employed  by  the  sixth 
auditor,  adjusted  the  accounts  of  the  war  department. 
Tlie  first  auditor  divided  the  treasury  accounts  with  the 
commissioner  of  the  land-office  and  the  fifth  auditor, 
while  the  latter  officer  also  audited  the  accounts  of  the 
state  department. 

The  prompt  adjustment  by  the  sixth  auditor  of  all  the 
accounts  of  the  postal  department  furnished  indisputable 
evidence  to  the  committee  on  retrenchment,  who  reported, 
in  1842,  that  one  auditor  could  adjust  all  the  claims  of  a 


1840.]  ACCOUNTING.  571 

department ;  and  such  an  arrangement  was  considered 
desirable,  chiefly  because  of  the  facility  and  method  that 
would  follow  in  despatching  business,  and  giving  informa- 
tion. They  were  certain  that  a  great  benefit  would  arise 
from  abandoning  the  numerical  designations  of  auditors, 
and  by  assigning  one  auditor  to  each  department ;  calling 
him  the  auditor  of  it,  and  intrusting  him  with  all  of  its 
accounts. 

To  require  the  first  comptroller  to  perform  adminis- 
trative duties  in  addition  to  his  duties  as  an  accounting 
officer,  was  a  grave  defect.  As  he  was  the  final  judge  of 
accounts,  he  ought  to  have  been  independent  of  the  sec- 
retary of  the  treasury ;  but  in  superintending  the  customs 
he  was  under  the  secretary's  control.  In  18491  ^j^^g  defect 
was  remedied  by  creating  the  office  of  commissioner  of 
customs,  and  assigning  to  it  all  the  administrative  duties 
pertaining  to  the  customs  previously  performed  by  the 
first  comptroller.  The  fifth  auditor,  too,  was  relieved  of 
his  duties  pertaining  to  the  lighthouse  establishment. 

The  entire  force  connected  with  the  several  departments 
at  Washington  in  1840  was  about  five  hundred  and  fifty 
or  six  hundred  persons.  Most  of  them  were  clerks  en- 
gaged in  examining,  adjusting,  and  keeping  the  accounts 
of  the  receipts  and  expenditures  of  the  government,  in 
corresponding,  copying,  and  other  duties. 

The  accounts  of  disbursements  were  far  more  compli- 
cated and  numerous  than  those  of  receipts :  hence  the 
adjustment  of  the  former  involved  more  investigation 
than  the  accounts  of  receiving  agents.  The  accounts  for 
military  disbursements  were  subjected  to  examination,  first, 

1  Act,  March  3,  30  Cong.,  second  session,  chajj.  108. 


572      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1840. 

in  a  bureau  or  other  subdivision  of  the  war  department, 
then  in  the  office  of  the  second  or  third  auditor,  and 
afterward  in  the  office  of  the  second  comptroller.  The 
examinations  were,  in  truth,  made,  with  occasional  excep- 
tions, by  the  clerks  in  the  several  offices  through  which 
the  accounts  passed.  In  the  first  place,  claims  accompa- 
nied by  vouchers  and  explanations  were  sent  to  the  head 
of  a  bureau.  They  were  referred  by  him  to  one  of  his 
clerks  for  examination.  The  clerk  returned  them  to  him 
with  his  opinion  and  advice,  which  was  certified,  without 
further  examination,  to  an  auditor.  The  same  papers 
were  referred  by  the  auditor  to  one  of  his  clerks,  who 
examined  them,  and  reported  to  him  ;  and,  without  further 
examination,  he  certified  them  to  the  second  comptroller 
in  like  manner.  The  comptroller  referred  the  papers  to 
one  of  his  clerks,  who  examined  and  reported  thereon ; 
and  the  decision  then  rendered  by  the  comptroller  him- 
self was  final.  The  number  of  claims  was  too  great  to 
be  examined  either  by  the  heads  of  bureaus,  auditors,  or 
comptrollers :  their  duties,  therefore,  were  confined  chiefly 
to  such  points  as  were  raised  by  the  clerks  when  making 
their  examinations.  Not  infrequently,  however,  claims 
were  presented  involving  intricate  questions  of  law  and 
evidence.  To  examine  these  was  more  especially  the 
work  of  the  auditors  and  comptrollers.  To  decide  them 
justly  was  often  a  difficult  task.  It  will  be  seen,  there- 
fore, how  important  were  the  offices  filled  by  the  audi- 
tors and  comptrollers ;  nor  is  there  any  reasonable  ground 
for  surprise,  considering  the  mass  of  claims  coming  before 
them  for  adjustment,  if  mistakes  should  sometimes  have 
been  made. 


1840.]  ACCOUNTING.  673 

Expenditures  for  the  army  and  navy  departments  were 
the  largest,  and  the  most  cften  misapplied.  The  utmost 
diligence  and  fidelity  were  required,  on  the  part  of  the 
accounting  officers  who  adjusted  the  accounts  of  these 
departments,  to  prevent  wastefulness  and  fraud.  One 
investigating  committee  of  Congress  reported  that  abuses 
of  a  very  serious  nature  had  been  practised  in  allowing 
large  sums  of  money  to  officers  of  the  army,  not  only 
without  law,  but  in  direct  violation  of  it.  There  had 
been  a  culpable  disregard  of  law  and  duty,  and  inexcusa- 
ble prodigality,  in  allowing  many  claims  of  persons  con- 
nected with  the  military  service.  The  allowing  of  double 
and  sometimes  triple  pay,  the  extortions  on  the  treasury 
under  the  pretext  of  contracts  and  services  not  author- 
ized by  law  nor  established  by  evidence,  the  gross  and 
wholesale  injustice  to  the  Indian  tribes,  showed  that  there 
was  no  effective  check  in  the  war  department  to  protect 
its  interests,  and  maintain  the  justice  and  character  of  the 
government.  It  was  believed,  at  the  time  of  making  their 
report,  that  the  expense  of  the  army  and  navy  per  man 
was  about  double  the  expense  of  those  employed  in  a 
similar  manner  by  European  governments.^ 

It  was  clearly  shown  that  the  examination  of  claims 
was  longer  delayed  and  more  loosely  conducted,  with 
respect  to  those  which  were  thrice  examined,  than  any 
others.  The  object  of  subjecting  claims  to  so  many  ex- 
aminations was  to  detect  and  prevent  frauds ;  but  those 
who  studied  the  matter  most  carefully,  questioned  whether 
the  mode  of  triple  examination  had  fulfilled  the  expecta- 
tion of  its  authors.  Responsibility  is  rarely  increased  by 
1  See  Report  No.  756,  27  Cong.,  second  session. 


574      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1840. 

multiplying  agents  to  do  the  same  thing.  Instead  of  act- 
ing as  checks  to  prevent  wrong  doing,  too  often  they 
promote  negligence  and  fraud  b\-  distributing  the  responsi- 
bility for  what  is  done.  Subsequently  the  mode  of  exam- 
ining accounts  was  changed :  they  were  first  examined  by 
an  auditor,  and  re-examined  by  a  comptroller,  thus  omit- 
ting one  examination.  The  change  has  been  a  real  im- 
provement in  two  ways,  —  by  increasing  the  responsibility 
of  those  who  adjust  claims,  and  by  expediting  the  business. 
A  very  important  investigating  committee  appointed 
in  1842,  whose  chairman  was  Mr.  Gilmer,  formerly  gov- 
ernor of  Virginia,  and  afterward  secretary  of  the  navy, 
recommended  a  reduction  of  the  clerical  force,  and  the 
abolition  of  several  offices,  —  the  board  of  navy  commis- 
sioners, the  commissary  of  purchases,  the  solicitor,  and 
the  recorder  of  the  land-office.  Congress  heeded  these 
recommendations.  Moreover,  the  committee  strenuously 
urged  the  retention  of  competent  persons  in  office  as  an 
indispensable  condition  of  their  rendering  the  most  effec- 
tive service.  The  committee  closed  their  very  thoughtful 
report,  which  is  well  worth  reading  in  our  own  time,  with 
the  following  resolution  on  this  subject :  — 

"  That  it  is  expedient  to  require  the  President  of  the  United 
States,  in  all  cases  of  removals  from  office,  to  communicate  the 
reason  or  cause  for  each  removal  from  office." 

With  respect  to  prescribing  how  the  departments  should 
make  contracts  for  the  various  things  needed  by  the  gov- 
ernment, Congress  enacted  no  other  important  measures, 
beside  those  already  described,^  until  1843.     After  that 

1  See  Chaps,  ii.  and  xii. 


1840.]  ACCOUNTIKG.  675 

time  all  materials  for  the  navy  were  to  be  furnished  by 
contract,  and  the  transporting  of  them  was  to  be  done  in 
like  manner.  Congress  enacted  hoAV  the  proposals  should 
be  made,  and  enjoined  the  navy  department  to  accept  the 
lowest  offer.  Every  proposal  was  to  be  accompanied  with 
a  written  guaranty,  signed  by  a  responsible  person,  that, 
if  accepted,  the  proposal  would  be  executed.  If  it  were 
not,  Congress  enacted  how  the  department  should  proceed 
against  the  bidder,  and  also  in  contracting  with  others.^ 

In  1844  the  fiscal  year  began  with  the  1st  of  July,  —  a 
change  which  Woodbury  recommended  nearly  ten  years 
before.  The  need  of  making  it  was  so  obvious,  that  no 
report  was  made  on  the  subject  by  any  committee,  nor  was 
there  any  opposition  to  the  change.  The  delay,  there- 
fore, in  changing  the  date,  is  the  more  unaccountable. 
Five  years  afterward,  the  appointment  of  an  assistant 
secretary  of  the  treasury  was  authorized.  His  duties  were 
to  examine  letters,  contracts,  and  warrants,  requiring  the 
signature  of  the  secretary  of  the  treasury,  besides  such 
other  duties  as  might  be  imposed  on  him  by  the*  secretary 
himself. 

1  Rev.  Stat.,  Sects.  3718-3720,  p.  739. 


576      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1840. 


CHAPTER    XV. 

APPROPRIATIONS    AND    EXPENDITURES. 
1840-1860. 

In  the  autumn  of  1840  there  was  an  overturning  of  po- 
litical parties,  and  Gen.  Harrison  was  elected  President. 
Dying  shortly  after  his  inauguration,  John  Tyler  suc- 
ceeded him,  whose  administration  was  as  novel  as  it  was 
painful,  especially  to  the  party  by  whom  he  had  been 
elected.  In  May,  Thomas  Ewing  of  Ohio,  who  had  been 
appointed  secretary  of  the  treasury  by  President  Harri- 
son, made  a  report  to  the  House,  in  which  he  discussed 
chiefly  the  keeping  and  disbursing  of  the  public  money, 
turning  also  a  side-light,  though  not  very  strong  one,  upon 
the  tariff.^ 

Ever  since  emptying  its  plethoric  purse  into  the  greedy 
State  treasuries,  the  government  had  not  received  enough 
to  pay  its  annual  expenses.  Every  year  it  sank  a  little 
deeper  into  the  mire  of  debt.  A  very  uncomfortable 
feeling  was  kindled  by  the  reflection,  that,  in  a  time  of 
profound  peace,  the  government  could  not  pay  its  ex- 
penses year  after  year,  save  by  borrowing.  The  treasury- 
note  system  worked  so  easily  in  getting  the  money  needed 

1  The  secretary's  report  was  elaborately  discussed  in  the  Senate  by  Mr. 
Woodbury. 


1841.]  APPKOPRIATIONS   AND   EXPENDITURES.  577 

to  pay  the  deficiency,  that  it  was  continued.  At  every 
session  the  old  stereotyped  Act  was  repeated,  witli  but 
few  changes  of  form,  authorizing  the  secretary  of  the 
treasury  to  re-issue  the  treasury-notes  that  might  be  pre- 
sented, and  extending  his  authority  to  issue  more  if  occa- 
sion required. 

In  1841,^  on  Ewing's  recommendation,  Congress  author- 
ized him  to  fund  the  unpaid  treasury-notes.  The  loan 
was  to  be  paid  the  1st  of  January,  1845.  Subsequently, 
other  treasury-notes,  which  could  not  easily  be  paid,  were 
funded  in  the  same  manner.  The  loan  authorized  in  1843 
was  made  payable  ten  years  afterward,  and  bore  five  per 
cent  interest. 

When  .17,000,000  more  of  treasury-notes  had  been 
funded  under  the  law  of  1843,^  others  remained  to  the 
amount  of  $4,656,387.45.  They  bore  six  per  cent  inter- 
est, which  was  a  high  rate  for  the  government  to  pay  at 
that  time.  The  secretary  of  the  treasury,  John  C.  Spen- 
cer, regarded  the  duty  "  very  obvious,"  of  exercising  the 
authority  given  to  him  by  the  Act  of  1843  to  issue  other 
notes  in  such  a  manner  as  would  promote  the  convenience 
of  the  treasury,  and  avoid  the  danger  and  expense  of  re- 
mitting coin  to  the  public  agents  for  disbursement,  and  yet 
save  the  largest  amount  of  interest.  Although  the  inter- 
est had  ceased  on  more  than  two  millions  of  these  notes, 
in  consequence  of  a  notice  given  by  the  treasury  of  its 
readiness  to  redeem  the  whole  amount,  yet  they  were 
retained  by  the  people  for  remittance  from  place  to  place. 

1  Act,  July  21,  27  Coiijr.,  first,  session,  chap.  3.  Tlie  operation  of  this 
'aw  was  extended.    Act,  April  15,  18i2,  27  Cong..,,  second  session^  chap.  26. 

2  March  3,  27  Cong.,  third  session,  chap.  81. 


578      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1843. 

This  fact  indicated  to  the  secretary  that  when  they 
were  redeemed  others  could  probably  be  issued,  of  a  low 
denomination,  without  any  or  at  a  nominal  interest,  and 
that  they  would  be  received  with  avidity  by  the  public 
creditors,  if  convertible  into  coin  on  demand.  Thinking 
thus,  what  did  he  do  ?  With  the  sanction  of  the  Presi- 
dent, he  issued  notes  of  the  denomination  of  fifty  dollars, 
with  interest  at  the  rate  of  one  mill  per  annum  on  a  hun- 
dred dollars.  These  notes  were  to  be  purchased  at  par 
whenever  presented  "  at  the  depositories  of  the  treasury 
in  the  city  of  New  York , "  and  an  indorsement  to  that 
effect  was  printed  on  the  back  of  them.  They  were  not 
only  receivable  for  all  public  dues,  but  could  be  exchanged 
for  specie  at  par  in  the  custom-houses  and  land-offices  to 
the  amount  of  one-half  the  coin  in  their  possession.  An 
effort  had  been  previously  made  by  Woodbury  to  substi- 
tute notes  bearing  nominal  rates  of  interest,  and  also  notes 
bearing  the  rate  of  two  per  cent ,  but  the  experiment  had 
failed  because  they  were  not  convertible  into  coin  on 
demand. 

No  apprehension  was  entertained  of  the  ability  of  the 
treasury  department  to  purchase  all  that  might  be  pre- 
sented for  payment.  "There  was,"  Spencer  declared, 
"  and  always  must  be,  a  surplus  in  the  treasury  beyond 
the  immediate  calls  upon  it.  This,  with  a  revenue  more 
than  three  times  the  amount  of  the  notes  constantly 
accruing,  would  be  adequate,  as  its  place  could  always  be 
supplied  with  other  notes,  with  or  without  interest,  as 
circumstances  required,  with  which  a  portion  of  the  pub- 
lic expenditures  could  be  met.  In  the  possible  event  of  a 
large  accuniulation,  treasury-notes  bearing  such  interest 


1843.]  APPROPRIATIONS    AND    EXPENDITURES.  579 

as  would  insure  loans  not  exceeding  the  prescribed  rate, 
or  a  resort  to  the  authority  to  issue  a  stock,  would  either 
of  them  be  sufficient  to  provide  the  necessary  funds  to 
meet  such  accumulation." 

As  a  justification  for  this  measure,  the  secretary  de- 
clared that  the  exigencies  of  the  treasury  demanded  that 
the  effort  should  be  made  to  relieve  it  from  such  a 
weight  of  interest,  especially  since  it  would  not  preclude 
a  return  to  the  system  which  invited  banks  to  hoard 
treasury-notes  by  allowing  them  interest,  while  they  bor- 
rowed of  the  community,  without  interest,  to  the  extent 
of  their  circulation.^ 

Spencer  discovered  no  constitutional  objection  to  bor- 
rowing in  this  way ;  but  Congress  did,  and  the  fires  of 
controversy  grew  very  warm.  Indeed,  all  the  constitu- 
tional arguments  against  making  paper  money  a  legal 
tender,  which  were  put  forth  twenty  years  later,  may  be 
found  in  the  reports  and  discussions  occasioned  by  this 
action  of  the  secretary  of  the  treasury .^ 

1  Annual  Report,  December,  1843. 

'^  Report  No.  379,  28  Cong.,  first  session.  This  mode  of  issuing  treasury- 
notes  was  a  renewal  of  a  feature  of  the  Tyler  Board  of  Exchequer,  which 
Congress  has  so  emphatically  condemned.  The  seventh  section  of  the  bill 
to  establish  that  board  read  as  follows:  "  That  the  secretary  of  the  treas- 
ury is  liereby  authorized  and  directed  to  cause  to  be  prepared  treasury- 
notes  of  denominations  not  less  than  five  dollars  nor  exceeding  a  thousand 
dollars,  which  notes  shall  be  signed  by  the  treasurer  of  the  United  States, 
and  countersigned  by  the  president  of  the  board  of  exchequer,  and  made 
payable  to  the  order  of  the  principal  agent  at  each  agency,  and  shall  be  by 
him  indorsed  when  issued  at  such  agency;  and  which  notes  shall  be 
redeemable,  and  shall  be  redeemed  in  gold  and  silver,  on  demand,  at  the 
agency  where  issued.  And  treasury-notes  intended  to  be  issued  by  the 
board  of  exchequer  at  the  seat  of  government  shall  be  in  like  form,"  etc. 
"  And  all  treasury-notes  issued  under  the  authority  of  the  Act  may,  when 
redeemed,  be  issued  by  the  board  and  its  agencies  respectively." 


580      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1843. 

An  effort  was  made  to  negotiate  a  loan  for  the  amount 
needed  to  discharge  the  treasury-notes  in  Europe ;  but  no 
foreigner  could  be  induced  to  buy  our  government  bonds 
at  that  time  at  par,  even  though  bearing  six  per  cent 
interest.  William  Cost  Johnson,  who  acted  for  the  treas- 
ury department  in  this  transaction,  remarked  in  his  report, 
that  "  while  nations  with  not  a  tithe  of  our  resources, 
and  with  large  public  debts,  have  been  able  to  effect  loans 
at  three  per  cent  per  annum,  the  agent  of  this  govern- 
ment had  to  return  from  the  same  money-market  where 
capital  is  seeking  investment  at  two  and  three  per  cent 
without  receiving  a  single  offer  for  any  portion  of  a  loan 
to  our  government  at  six  per  cent." 

Why  did  Congress  suffer  the  public  debt  to  increase  ? 
Why  were  not  the  expenditures  reduced,  if  increased  tax- 
ation were  not  practicable  ?  Why  should  the  six  millions 
of  indebtedness  bequeathed  by  the  former  administration 
be  allowed  to  expand  beyond  twenty-five  millions  in 
1844  ?  Retrenchment  was  the  true  remedy,  yet  Congress 
seemed  reluctant  to  apply  it.  The  salaries  paid  were 
fixed  when  the  country  was  sailing  on  the  flood-tide  of 
prosperity,  when  money  was  plentiful  and  cheap,  and  the 
prices  of  every  thing  correspondingly  high.  But  now  the 
situation  was  reversed,  yet  Congress  was  very  slow  in 
discovering  it.  Not  until  1844  did  Congress  awake  to  the 
necessity  of  reducing  expenses  in  order  to  stop  the  growth 
of  the  debt. 

Although  another  national  debt  was  growing,  a  move- 
ment began  in  1842  to  increase  it  by  assuming  the  debts 
of  the  States,  which  at  that  time  amounted  nearly  to 
$200,000,000,  —  a  larger  sum  than  either  of  the  war  debts 


1842.]  APPROPRIATIONS   AND   EXPENDITURES.  581 

paid  by  the  government.  These  debts  were  almost  wholly 
the  growth  of  the  preceding  fifteen  years.  At  the  close 
of  1825  the  States  owed  only  $12,790,728 ,  and  during  the 
next  five  years  no  more  than  813,679,689  additional  stock 
had  been  issued.  In  the  succeeding  five  years,  however, 
$40,012,769  were  issued,  and  1107,823,808  more  in  less 
than  three  years  afterward.  The  debts  of  the  several 
States  now  reached  $174,306,994.  The  money  had  been 
spent  in  aiding  State  banks,  in  building  canals,  railroads, 
turnj)ikes,  macadamized  roads,  and  other  things. 

The  debts  were  mostly  held  abroad,  and  bore  six  per 
cent  interest.  The  creditors  were  willing  to  reduce  the 
rate  one-half,  if  the  government  would  assume  the  obli- 
gations. William  Cost  Johnson  of  Maryland  was  the 
champion,  in  the  House,  of  national  assumption,  and  was 
appointed  chairman  of  a  special  committee  to  consider  the 
subject.  A  large  number  of  memorials  were  sent  to  Con- 
gress, in  which  a  common  opinion  was  expressed  that 
industry  had  become  unprofitable,  wages  had  fallen,  per- 
sonal confidence  was  impaired,  and  business  paralyzed. 
The  States,  too,  though  having  the  will  to  pay  their  an- 
nual obligations,  it  was  declared,  had  not  the  means,  that 
confidence  would  not  be  restored,  nor  industry  thrive, 
nor  the  faith  of  many  States  be  maintained,  nor  the  gov- 
ernment itself  recover  its  former  credit,  until  Congress, 
by  decisive  and  enlightened  legislation,  rescued  the  peo- 
ple and  the  States  from  their  embarrassed  condition. 

The  committee  reported  in  favor  of  assumption.  At 
that  time  Illinois  was  a  delinquent  State ,  Missouri  had 
passed  a  stay  law,  because  her  people  were  suffering  from 
the  embarrassments  of  the  former  State ,  Maryland  was 


582      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1844. 

remiss  in  her  engagements ;  and  South  Carolina,  though 
punctual  in  paying,  was  regarded  with  distrust,  and  her 
stocks  sold  below  par.  One  of  the  strongest  arguments 
in  favor  of  assumption  was,  that  the  government  assumed 
the  debts  of  the  States  in  1790. 

On  the  other  hand,  the  unequal  benefit  of  assumption 
to  the  States  was  a  fatal  objection  to  the  measure.  Many 
of  the  States  owed  nothing ;  others,  only  a  small  amount. 
The  committee  proposed  to  divide  the  $200,000,000  of 
government  bonds  or  stock  on  the  basis  of  $1,000,000  for 
each  senator,  $651,982  for  each  representative,  and  the 
same  amount  for  the  District  of  Columbia.  The  basis 
was  determined  by  the  last  apportionment  law.  Congress 
did  not  adopt  the  plan ;  and  the  nation  escaped  from  the 
burden  which  the  contractors  of  the  debt,  and  the  holders 
of  it,  were  so  anxious  to  put  upon  the  national  shoulders.^ 

Spencer  was  succeeded  by  George  M.  Bibb  of  Kentucky, 
the  fourth  and  last  secretary  of  the  treasury  during 
Tyler's  troubled  administration.  Ewing  resigned  when 
Tyler  began  to  manifest  a  disinclination  to  remain  in  har- 
mony with  the  party  that  had  elected  him ;  and  he  was 
succeeded  by  Walter  Forward  of  Pennsylvania,  who  had 
been  appointed  first  comptroller  by  President  Harrison. 
He  remained  in  office  long  enough  to  report  twice  annu- 
ally concerning  the  administration  of  the  treasury  depart- 
ment. The  President  next  sent  the  name  of  Caleb 
Cushing  into  the  Senate,  but  the  nomination  was  rejected. 
The  nomination  was  twice  renewed,  but  the  Senate  reso- 
lutely declined  to  confirm  him.  John  C.  Spencer,  the 
secretary  of  war,  was  then  transferred  to  the  treasury  de- 
1  Report  of  Select  Com.,  No.  29(j,  27  Cong.,  third  session. 


1844.]  APPROPRIATIONS    AND    KXPf:NDITURES.  583 

partment,  and  the  Senate  sanctioned  the  change.  Scarcely 
had  a  year  passed  before  Spencer  resigned  in  consequence 
of  receiving  an  order  from  the  President  to  deposit  one 
hundred  thousand  dollars  of  secret  service  money  with 
a  confidential  agent  in  New  York  contrary  to  law.^  With 
such  swift  changes,  efficiency  in  conducting  the  affairs  of 
the  treasury  was  impossible.  The  wonder  is,  that  the 
public  business  was  not  managed  worse.  While  Bibb 
administered  the  finances,  prosperity  returned  to  the 
country,  and  a  larger  revenue  flowed  into  the  treasury. 
There  was  no  longer  a  deficiency,  but  a  surplus,  which 
Bibb  recommended  should  be  kept  for  a  sinking-fund  to 
pay  the  debt  which  had  been  accumulating  since  1837. 
No  longer  did  the  secretary  of  the  treasury  need  recom- 
mend the  tapping  of  new  sources  for  taxation :  the  supply 
of  revenue  was  bountiful,  and  the  wheels  of  the  govern- 
ment rolled  easily  along. 

Yet  there  was  a  marked  difference  between  his  views, 
and  those  of  the  committee  of  ways  and  means,  with 
respect  to  paying  the  public  debt.  Bibb  favored  a  slower 
liquidation,  and  recommended  the  issue  of  new  stock  for 
a  portion  of  it,  payable  in  ten  or  fifteen  years,  and  a 

1  The  New- York  Evening  Post,  in  exi>laining  this  affair  more  fully, 
added,  "  In  carrying  out  the  preparations  for  the  naval  expedition  against 
Mexico,  it  became  necessary  to  procure  the  deposit  of  a  hundred  thousand 
dollars,  by  way  of  secret  service  money,  with  a  confidential  agent  at  New 
York.  As  there  could  be  discovered  no  Act  of  Congress  directing  such  a 
disposition  of  any  part  of  the  public  money,  Mr.  Spencer,  when  requested 
by  the  President,  declined  giving  the  order,  or  to  allow  it  to  be  given,  to  his 
subordinates.  He  next,  it  is  said,  received  a  peremptory  order  to  transfer 
the  money.  Mr.  Spencer,  seeing  the  game  was  up,  coolly  wrote  a  second 
refusal,  and  with  it  sent  in  a  note  of  resignation.  He  remained  in  the 
department  just  twenty-four  hours  afterwards." — 66  Niles,  p.  209. 


584      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1S44. 

reduction  of  taxes:  on  the  other  hand,  the  committee 
stoutly  advocated  a  more  rapid  payment  of  the  debt,  and 
the  maintenance  of  the  revenue  laws.  Their  views  pre- 
vailed. 

The  wasteful  and  illegal  expenditure  of  money,  which 
had  thrown  such  a  painful  glare  over  the  two  former 
administrations,  had  by  no  means  ended.  It  had  been 
lessened  in  many  ways ;  but,  when  once  these  fires  begin 
to  burn,  they  are  not  easily  extinguished.  Said  a  com- 
mittee on  retrenchment  in  1844,^  "  Thorough  investigation 
has  been  so  long  delayed,  that  abuses  have  imperceptibly 
crept  into  nearly  every  department,  '  regulations '  have 
become  laws,  '  precedents '  have  constantly  multiplied  for 
extra  allowances  and  other  unwarrantable  expenditures, 
office-hours  have  been  shortened,  and  indolence  become 
fashionable."  In  the  army  and  navy  especially,  the  offi- 
cers were  receiving  a  large  compensation  in  return  for  a 
slight  service,  and  many  were  retained  who  had  no  duty 
to  perform.  "  A  most  reckless  and  profligate  use  "  had 
been  made  of  the  contingent  funds  of  the  several  depart- 
ments, including  that  under  the  immediate  control  of  the 
House.  But  Congress  hesitated  to  begin  the  greatly 
needed  work  of  reform.  Indeed,  it  has  always  been  diffi- 
cult for  that  body  to  pare  down  expenditures,  however 
glaring  might  be  the  necessity  for  such  action. 

When  Woodbury  retired  from  the  treasury,  the  gov- 

1  Report  No.  300,  28  Cong.,  first  session.  The  committee  at  the  same  ses- 
sion recommended  a  reduction  in  the  pay  of  the  army  (Report  No.  353)  and 
in  the  navy  (No.  373).  The  commissary-general  of  subsistence  recom- 
mended a  change  in  the  mode  of  making  contracts  which  would  save 
money  to  the  government  (Report  No.  353,  Appendix  E). 


1844.] 


APPKOPRIATIONS   AND    EXPENDITURES. 


585 


ernraent  was  in  debt ;  though  the  amount  was  small,  and 
would  have  been  discharged  during  his  last  official  year, 
had  there  not  been  very  large  expenditures  for  the  Florida 
war,  and  for  paying  Indian  claims.  How  the  debt  had 
risen  by  the  end  of  the  next  four  years  will  be  seen  in 
comparing  the  following  figures:  — 


Old  funded  debt     . 

Old  unfunded  debt 

Treasury-notes  of  1812    . 

Mississippi  stock 

Debts  assumed  of  District  of  Columbia 

Outstanding  treasury-notes 

Loan  of  1841   . 

Loan  of  1842  . 

Loan  of  1843  . 


Dec,  1844. 

$156,174  51 
22,003  56 
4,317  44 
4,320  09 
1,260,000  00 
1,912,713  17 
5,143,026  88 
8,343,886  03 
7,004,231  35 

t,771,115  48  123,850,673  17 


Dec,  1839. 

$299,554  95 

26,622  44 

5,295  00 

4,320  09 

1,500,000  00 

4,433,823  00 


The  secretary  had  redeemed,  it  is  true,  since  July, 
1322,584.61  of  treasury-notes,  and  1539,950  of  the  stock 
issued  in  1841 ;  but  the  debt  which  remained  was  an  in- 
delible mark  of  the  misgovernment  of  the  period.  There 
were  some  slight  attempts  to  economize  during  Tyler's 
administration ;  but  extravagant  and  corrupt  modes  of 
expenditure  had  become  so  perfectly  organized,  that  re- 
form was  slow  and  difficult.^     It  must  be  added,  too,  that 


1  A  committee  that  investigated  the  expenditures  of  Lieut.  McLaughlin, 
commander  of  the  Florida  squadron,  whose  corrupt  course  toward  the 
government  was  very  clearly  proved,  said,  in  closing  their  report,  "  Con- 
gress and  the  people  may  now  understand,  in  part,  why  it  is  that  the  ex- 
pense of  supporting  our  navy  is  so  much  greater  than  that  of  any  other 
nation.  The  committee  have  no  reason  to  suppose  or  believe,  tliat,  in  the 
disbursements  of  the  naval  appropriation,  cases  of  abuse  and  squandering 


586      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1844. 

the  cry  of  retrenchment  was  neither  strong  nor  effective. 
The  spirit  of  reform  that  existed  in  Congress  was  faint 
and  fitful,  and  spent  itself  chiefly  in  lamentation.  Noth- 
ing could  have  been  clearer  than  the  duty  of  Congress 
to  bring  the  expenditures  within  the  receipts,  yet  not 
until  1846  were  the  estimates  for  expenditures  very  much 
reduced.  A  new  tariff  was  enacted  in  1841,  which  was 
expected  to  yield  a  larger  revenue  to  the  government ; 
but  for  two  years  afterward  importations  were  light.  The 
country  had  suffered  reverses,  and  had  not  recovered  from 
liquidating  the  heavy  balance  due  abroad,  —  the  accumu- 
lation of  several  years  of  buying  in  excess  of  the  products 
sent  thither.  While  the  income  was  reduced,  especially 
in  a  time  of  peace,  the  expenditures  ought  to  have  been 
pared  down  in  almost  every  direction.  Congress  should 
have  diminished  the  appropriations,  and  the  executive 
departments  should  have  been  more  faithful  and  efficient 
in  making  contracts  and  in  settling  accounts.  Had  these 
things  been  done,  there  would  have  been  no  debt  in  1844. 
Woodbury,  it  is  true,  pleaded  for  a  reduction  of  the 
appropriations ;  but  he  did  not  point  out  where  to  make 
them.  He  might  have  shown  this  so  clearly  that  Con- 
gress would  not  have  dared  continue  in  the  old  ways.  His 
successors  flitted  through  the  treasury  department  so 
swiftly,  that  they  scarcely  had  time  to  ascertain  where  the 

of  the  public  money  frequently  occur  to  the  extent  of  the  one  in  question; 
but  they  are  convinced  that  needless  expenditure  and  extravagance,  to  a 
great  extent,  exist  throughout  the  whole  service,  owing,  as  the  committee 
believe,  to  the  present  loose  and  faulty  system  of  accountability.  This 
leak  upon  the  treasury,  which  it  has  become  the  duty  of  the  committee 
to  expose,  is  but  one  among  many  which  remain  to  be  found  out  and 
stopped."  —  Report  No.  582,  28  Cong.,  first  session. 


1843.]  APPROPRIATIONS   AND   EXPENDITURES.  587 

growth  of  expenditure  had  been  exuberant,  and  might 
be  wisely  lopped  off.  It  was  easier  to  recommend  an 
increase  of  revenue.  Ewing,  thinking  that  Congress 
might  not  be  willing  to  revise  the  tariff  until  it  had  had 
''its  final  and  permanent  operation,"  recommended,  as  a 
temporary  measure,  levying  a  duty  of  twenty  per  cent 
ad  valorem  on  all  articles  which  at  that  time  paid  no  duty, 
or  one  less  than  twenty  per  cent,  and  some  other  modifi- 
cations of  the  existing  tariff,  with  the  view  of  enriching 
the  revenues  of  the  government ;  and  this  recommenda- 
tion received  the  sanction  of  Congress.  Forward  favored 
a  re-adjustment  of  the  tariff,  and  higher  rates.  Spencer 
recommended  retrenchment,  especially  in  collecting  the 
revenues,  and  in  some  of  the  permanent  and  indefinite 
appropriations;  but  he  uttered  only  a  feeble  note.  As  a 
relief  measure,  he  urged  more  cogently  the  taxing  of  tea 
and  coffee.^ 

His  estimate  of  expenditures  was  very  sharply  criti- 
cised by  the  Committee  of  Ways  and  Means.  He  thought 
the  deficiency  would  be  about  four  millions  and  a  half  at 
the  end  of  June,  1845 ;  but  in  making  his  calculations  he 
added  the  outstanding  appropriations  of  the  previous  year, 
and  omitted  to  deduct  the  outstanding  appropriations  of 
the  current  year.     The  committee  regarding  the  unex- 

1  Annual  Treasury  Report,  December,  1843.  Ingersoll,  in  his  Minority- 
Report  on  the  Tariff  (April  4,  1844,  No.  306,  28  Cong.,  first  session),  said, 
"  During  the  year  1843  upwards  of  twenty-two  thousand  pounds  of  coffee 
were  imported  into  the  district  of  Baltimore  alone.  If  it  had  paid  a  mod- 
erate duty  of  two  cents  a  pound,  it  would  have  yielded  more  than  two- 
thirds  of  all  the  revenue  received  at  that  custom-house.  Experience  has 
shown  that  a  duty  upon  coffee  is  attended  with  little  or  no  increase  of  price 
to  the  consumer;  and  the  impression  was  general,  that,  if  required  by  the 
treasury,  it  would  be  just  and  popular." 


588      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1843. 

jDended  balance  of  appropriations  of  each  year  as  not 
varying  "very  materially  from  one  year  to  another," 
they  set  aside,  from  the  appropriations  for  the  fiscal  year 
1844-45,  $2,500,000  for  these  unexpended  balances,  and 
by  so  doing  cut  down  the  deficiency  to  $2,000,000.  The 
committee  agreed  with  the  secretary  in  regarding  "the 
insufficiency  of  the  current  revenues  to  meet  the  cur- 
rent expenditures  to  be  not  merely  present,  but  future 
also."  What  the  committee  proposed  was  a  reduction 
of  expenditure  equal  to  the  probable  deficiency  in  the 
revenue.  Reductions  covering  this  amount  had  been 
recommended  by  Spencer.  Though  adopted  by  the  Com- 
mittee of  Ways  and  Means,  they  did  not  expect  to  secure 
a  reduction  of  the  appropriations  to  the  standard  of  the 
accruing  revenue.  The  committee  remarked,  that,  at 
each  session  of  Congress  for  the  last  seven  years,  appro- 
priations had  been  made  which  were  much  larger  than 
the  current  revenues.  "  During  the  early  portion  of  this 
period  there  were  means  in  the  treasury  independent  of 
the  current  revenue,  being  a  surplus  of  former  years,  to 
meet  these  excesses  of  aj)propriations ;  and  when  those 
means  were  exhausted,  temporary  loans  in  the  form  of 
treasury-notes  were  resorted  to,  to  supply  the  deficiencies. 
In  this  way  a  debt  in  the  shape  of  treasury-notes  outstand- 
ing, to  an  amount  not  probably  varying  very  materially 
from  six  millions,  had  been  contracted  at  the  time  when 
the  present  administration  came  into  power  (on  the  4th 
of  March,  1841) ;  and  that  debt,  thus  commenced,  has 
since  that  time,  and  up  to  the  first  day  of  December  last, 
been  swelled  to  the  startling  amount  of  more  than  twenty- 
five  millions,  more  than  twenty-one  millions  of  which  have 


1844.]  APPROPRIATIONS   AND   EXPEXDITUKES.  589 

been  made  to  assume  the  permanent  form  of  loans  for  a 
term  of  years,  and  the  residue  yet  retains  the  form  of 
treasury-notes  outstanding.  Deficiencies  in  the  current 
and  accruing  revenue,  to  meet  the  annual  appropriations, 
liave  accumulated  this  amount  of  debt  in  this  short  pe- 
riod, and  more  than  nineteen  millions  of  it  within  three 
years."  ^ 

When  Bibb  made  his  report,  at  the  close  of  1844,  the 
country  had  recovered  from  its  depression,  profits  were 
greater,  the  bank  circulation  had  expanded,  importations 
had  increased,  and  the  revenues  were  augmented  suffi- 
ciently to  pay  the  current  expenditures  and  leave  a  sur- 
plus. 

Walker,  who  succeeded  Bibb,  proposed  to  swell  the 
national  income  still  more  by  revising  the  tariff  in  such  a 

1  This  amount  did  not  include  the  balance  of  the  old  funded  or  unfunded 
debt,  or  the  debts  assumed  for  the  cities  in  the  District  of  Columbia,  nor 
the  indebtedness  to  the  Indian  tribes,  nor  various  trust-funds.  —  ^epo?-<, 
March  11,  1844,  No.  306,  28  Cong.,  first  session. 

There  were  always  appropriations  made  for  one  year,  which  were  not 
expended,  or  only  in  part,  until  the  next.  These  balances  A'aried  in  round 
numbers  from  $6,000,000  to  $18,000,000,  and  the  appropriations  from  1829  to 
1840  increased  beyond  the  expenditures  to  the  amount  of  $17,442,125.18. 
Portions  were  carried  to  the  surplus  fund;  yet  an  unexpended  balance  of 
former  appropriations,  amounting  to  $10,412,003.20,  remained  Jan.  1,  1843. 
The  committee  of  ways  and  means,  in  their  report  on  the  state  of  the 
finances  in  February,  1843,  remarked  concerning  this  practice,  "It  has 
thrown  a  vast  responsibility  upon  the  Executive,  and  vested  him  with  a 
dangerous  power  over  the  treasury  of  the  nation.  To  illustrate  this,  let  us 
suppose  that  the  appropriations  for  1842  were  $20,000,000,  and  that  the 
President  should  see  fit  to  expend  only  one-half  during  that  year,  and 
permit  the  remaining  $10,000,000  to  lie  over  for  expenditure  in  1843:  then 
if  the  appropriations  for  1843  should  be  $20,000,000,  the  President  would 
have  it  in  his  power  to  expend  $30,000,000  in  1843,  and  thereby  exhaust  the 
treasury."  — No.  227,  27  Cong.,  third  session. 


590      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1846. 

way  as  to  obtain  the  largest  revenue  possible  from  im- 
portations. Congress  adopted  his  views,  and  the  tariff 
was  revised  accordingl3\  But  again  the  alarm  of  war  was 
sounded,  and  more  money  than  was  received  through  the 
ordinary  channels  was  needed. 

The  President  was  authorized  to  issue,  within  a  year, 
ten  million  dollars  of  treasury-notes,  or  to  issue  stock  for 
that  amount  redeemable  within  twenty  years.  Only  six 
per  cent  was  to  be  allowed  in  either  case  ;  nor  was  any 
commission  to  be  given  for  negotiating  the  loan.^ 

Although  Congress  authorized  this  loan  in  July,  within 
six  months  more  money  was  required  to  maintain  the  war 
against  Mexico.  In  January,^  therefore,  a  loan  of  twen- 
ty-three million  dollars  was  authorized ;  but  several  new 
conditions  were  attached  to  it  which  require  notice.  The 
President  could  issue  the  whole  amount  in  the  form  of 
treasury-notes  of  as  small  denominations  as  fifty  dollars ; 
and  they  were  redeemable  within  one  or  two  years  after 
date,  the  interest  to  be  determined  by  the  secretary,  with 
the  approval  of  the  President,  though  not  exceeding  six 
per  cent,  which  was  to  cease  after  a  notice  of  sixty  days 
that  the  government  was  ready  to  redeem  them.  They 
were  to  be  given  to  those  creditors  who  were  willing  to 
receive  them  ;  and  on  their  credit  the  secretary  was  author- 
ized "to  borrow  from  time  to  time  such  sums  as  the 
President  may  think  expedient."  The  law,  however,  con- 
tained a  proviso  that  they  could  not  be  pledged  or  sold 
for  less  than  their  face  value,  "including  the  principal 
and  interest  thereon."     They  were  transferable  by  deliv- 

1  Act,  July  22, 1846,  29  Cong.,  first  session,  chap.  64. 

2  Act,  Jan.  28,  1847,  29  Cong.,  second  session,  chap.  5. 


181G.]  APPROPRIATIONS   AND    EXPENDITURES.  591 

ery  and  assignment,  and  receivable  for  all  public  dues; 
and  the  secretary  was  authorized  to  buy  them  at  par, 
allowing  also  for  the  amount  of  interest*  due  at  the  time 
of  purchase.  The  holders,  too,  of  all  outstanding  treas- 
ury-notes, were  allowed  to  exchange  them  for  six-per-cent 
funded  stock,  and  to  receive  the  interest  due  thereon  at 
the  time  of  the  exchange  in  money,  the  government 
reserving  the  right  to  redeem  them  at  any  time  after  Jan. 
1,  1848.  The  authority  granted  to  the  secretary  the  pre- 
vious year,  to  issue  ten  million  dollars  of  treasury-notes, 
was  limited  to  issuing  one-half  that  amount ;  and  the 
President  was  granted  discretionary  power  to  issue  stock 
for  the  entire  loan  of  twenty-three  million  dollars,  instead 
of  treasury-notes  redeemable  after  the  1st  of  January, 
1848.  The  secretary  of  the  treasury  was  also  required  to 
publish  monthly  a  statement  of  all  the  treasury-notes 
issued  or  redeemed. 

In  February  the  secretary  advertised  for  proposals  for 
eighteen  million  dollars  of  these  notes.  He  stated  in  his 
notice  that  all  bids  must  be  unconditional,  and  without 
any  reference  to  the  bids  of  others,  or  they  might  not  be 
considered.  None  would  be  received  below  par.  The 
department  reserved  the  right  to  fix  the  periods  when  the 
money  must  be  paid,  "  so  as  not  to  be  required  to  antici- 
pate the  wants  of  the  government,  or  allow  any  interest " 
before  receiving  the  money.  The  amount  of  the  bids  was 
$57,722,983,  nearly  all  of  which  were  above  par,  varying 
from  one-eighth  of  one  per  cent  to  two  per  cent.  The 
remainder  of  the  loan  was  exchanged  at  par,  partly  for 
money  to  be  deposited  without  charge  at  New  Orleans, 
where  the  wants  of  the  government  were  great,  and  the 


592      FINANCIAL  HISTOKY  OF  THE  UNITED  STATES.       [1846. 

rest  chiefly  to  the  Smithsonian  Institution.  On  the  22d 
of  October,  1846,  the  department  had  advertised  for  the 
exchange  at  par  o^f  three  million  dollars  of  treasury-notes 
bearing  five  and  two-fifths  per  cent  interest  for  deposits  of 
specie  with  the  assistant  treasurers.  For  several  months 
the  exchange  was  made  slowly ;  and  when,  in  February,  the 
eighteen-million  loan  was  advertised,  "  serious  doubts  were 
entertained  "  whether  it  would  be  taken  at  par.  It  was 
the  first  loan  ever  negotiated  in  specie  since  the  founding 
of  the  government,  and  the  first,  save  that  of  the  pre- 
vious autumn,  which  had  ever  been  negotiated  at  or  above 
par  during  a  period  of  war.  "  The  magnitude  of  the 
loan,"  declared  the  secretary,  "  the  fluctuations  below  par 
of  the  previous  stock  and  notes,  the  untried,  and,  to  many, 
alarming  restraining  operation  of  the  constitutional  treas- 
ur3%  the  heavy  expenditures  of  the  war,  and  the  require- 
ment of  all  the  payments  from  time  to  time  in  specie, 
were  deemed  by  many  as  insuperable  obstacles  to  the 
negotiation  of  the  whole  of  the  loan  at  or  above  par. 
But,  under  the  salutary  provisions  of  the  constitutional 
treasury,  the  credit  of  the  government  was  in  truth  en- 
hanced by  receiving  and  disbursing  nothing  but  coin ; 
thus  placing  all  its  transactions  upon  a  basis  more  sound, 
and  entitled  to  higher  credit,  than  when  it  held  no  specie, 
had  no  money  in  its  own  possession,  and  none  even  in  the 
banks,  to  pay  its  creditors,  but  bank  paper.  Then  it  was 
dependent  upon  the  credit  of  the  banks,  and  was  sub- 
jected to  every  fluctuation  which  affected  their  credit: 
now  it  stands  upon  the  basis  of  specie,  so  as  to  be  above 
all  suspicion  of  discredit ;  whilst,  by  its  demand  for  coin 
for  revenue  payments,  it  sustains  not  only  its  own  credit. 


1847.]  APPIIOPEIATIONS    AND   EXPENDITURES.  593 

but  renders  more  safe  the  credit  and  currency  and  busi- 
ness of  the  whole  Union."  ^ 

The  next  year  another  loan  of  sixteen  million  dollars 
was  authorized,  bearing  six  pev  cent  interest,  payable 
quarterly  or  semi-annually,  and  reimbursable  after  twenty 
years.2  Proposals  were  to  be  invited,  the  surplus  reve- 
nues were  pledged  for  paying  the  loan,  and  the  secretary 
was  authorized  "  to  purchase,  at  any  time  before  the 
period  .  .  .  limited  for  the  redemption  of  the  stock,  .  .  . 
such  portion  thereof  at  the  market  price,  not  below  par, 
as  the  funds  of  the  government"  might  admit  "after 
meeting  all  the  demands  of  the  treasury."  ^  This  was 
the  final  loan  for  paying  the  cost  of  waging  the  Mexican 
war. 

The  loan  was  duly  advertised  just  as  the  war  closed  : 
and  the  premium  obtained  was  $487,168.66,  "  which  was 
the  more  extraordinary,"  said  Walker,  "inasmuch  as  the 
entire  sale  of  the  sixteen  millions  of  stock  in  a  single 
day  exceeded  the  rate  at  which  the  government  six-per- 
cent twenty-years'  stock,  exclusive  of  interest  and  bro- 
kerage, was  then  selling  in  small  sums  in  the  market."  ■* 

The  secretary  of  the  treasury  had  no  right  to  purchase 
above  par  the  twenty-eight  millions  of  treasury-notes  and 
stock  authorized  by  Congress  in  1847.  When  the  bill  was 
pending.  Walker  recommended  that  authority  should  be 
delegated  to  the  treasury  to  purchase  any  portion  of  it  at 
the  market  rate,  whatever  that  might  be.  His  reason 
was,  that    such   authority    would   make    the    debt   more 

1  Annual  Report,  December,  1847.  2  From  July  1, 1848. 

3  Act,  March  31,  1848,  30  Cong.,  first  session,  chap.  26. 
*  Annual  Report,  December,  1848,' 


594      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1848. 

valuable  to  the  purchaser  when  sold  by  the  treasury, 
and  therefore  would  increase  the  premium.  It  was  obvi- 
ous, the  secretary  declared,  that,  if  the  government  had 
the  means  to  purchase  the  debt  before  maturity,  it  should 
be  done,  rather  than  to  pay  the  interest ;  and  it  was  also 
clear,  that  by  increasing  the  amount  which  the  govern- 
ment could  purchase,  "  especially  to  the  great  extent  of 
twenty-eight  million  dollars,"  the  treasury  could  purchase 
on  better  terms.  He  therefore  recommended  that  au- 
thorit}'-  be  given  to  purchase  the  debt  at  the  market  rate.^ 
This  legislation  was  the  more  needful,  because  the  ipcome 
derived  from  the  sales  of  lands  had  been  set  apart  for 
discharging  this  debt;  yet,  if  it  could  not  be  thus  em- 
iployed  before  the  debt  matured,  it  must  remain  in  the 
treasury.  Congress  granted  the  authority ,  and  subse- 
quently, purchases  were  made  at  varying  rates,  though 
some  of  them  were  very  high.^ 

The  excess  of  army  and  navy  expenditures  occasioned 
by  the  Mexican  war  was  163,605,621.31 ;  the  increase 
of  debt,  by  the  issue  of  stock  and  treasury-notes,  was 
$49,000,000:  consequently  the  difference,  114,605,621.31, 
was  paid  from  the  revenue,  including  the  premium,  ob- 
tained from  loans,  of  8563,061.39.  A  still  larger  portion 
of  the  expenditure  would  have  been  paid  from  the  reve- 
nue, had  Congress  imposed  a  duty  on  tea  and  coffee,  which 
Walker  recommended.  His  recommendation,  though  re- 
peated several  times,  made  no  effective  impression  on 
Congress.^ 

^  Annual  Report,  December,  1848. 

2  Act,  March  3,  1849,  30  Cpug.,  second  session,  chap.  100. 

3  See  An^^i^''  Treasury  Report,  December,  1850. 


18.-,i.l  APPROPRIATIONS   AND    EXPENDITURES.  595 

The  debt  began  to  shrink  after  the  close  of  the  war ; 
yet  Meredith,  Walker's  successor,  appointed  by  President 
Taylor,  declared  there  would  be  a  deficit  in  1850  and 
1851,  arising  from  the  payment  of  money  to  Mexico 
under  the  treaty.^  He  not  only  recommended  the  issue 
of  more  stock  or  treasury-notes,  but  also  an  increase  of 
the  duties.  Congress  authorized  the  issue  of  $10,000,000 
of  stock  to  Texas,^  in  execution  of  an  agreement  when 
that  State  was  admitted  into  the  Union,  but  declined  to 
change  the  tariff.  Meredith  was  appointed  from  Penn- 
sylvania, and  his  report  was  mainly  an  elaborate  argu- 
ment for  restoring  a  protective  system  of  duties. 

Although  the  debt  was  increased  by  the  issue  of  stock 
to  Texas,  and  the  payment  of  the  Mexican  indemnity,  a 
portion  of  the  debt  was  paid  every  year.  The  govern- 
ment could  not  get  hold  of  it  without  paying  a  heavy 
price.  The  premiums  paid  on  $2,523,200  of  certificates 
of  stock,  purchased  at  market  rates  in  1851  and  1852, 
amounted  to  $325,655.24,  —  more  than  one-eighth  of  the 
entire  debt  purchased.  "These  rates,  if  applied  to  the 
whole  debt  as  it  stood  on  the  20th  of  November  last," 
said  the  secretary  in  his  annual  report  in  December,  1851, 
"would  require  for  its  liquidation,  in  addition  to  that 
amount,  about  the  sum  of  eight  million  dollars." 

The  secretary  inquired  whether  sound  policy  did  not 
demand  the  giving  to  the  department  some  discretion  to 

1  The  United  States  had  agreed,  in  the  treaty  with  Mexico,  to  pay 
$15,000,000  to  her,  beside  $3,500,000  of  claims  of  American  citizens  against 
the  Mexican  Government.  The  payments  to  Mexico  were  to  be  made  at 
various  times,  extending  over  several  years. 

2  Only  5?5,000,000  were  issued.  See  Corwin's  Annual  Treasury  Report, 
Jan.  15,  1853. 


596      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1851. 

purchase  with  the  available  surplus  revenue  sound  State 
stocks,  when  this  could  be  done  at  or  near  their  par 
value,  and  to  hold  them  for  a  sinking-fund,  which  might 
be  applied  toward  redeeming  the  public  debt  when  it 
became  due.  Of  course,  the  object  of  establishing  such 
a  policy  was  to  pay  the  debt  without  paying  a  premium. 
The  secretary  regarded  "such  a  course  desirable,"  but 
Congress  thought  otherwise. 

The  history  of  the  treasury  department's  investment 
of  trust-funds  in  1836  was  undoubtedly  fresh  in  the 
minds  of  some  members.  Congress  authorized  the  in- 
vestment of  the  Smithsonian  fund  in  State  stocks ,  and 
the  secretary  of  the  treasury,  soon  after  receiving  the 
gift,  exchanged  it  for  bonds  issued  by  the  State  of  Arkan- 
sas. The  money  was  received  by  Ambrose  Sevier,  a 
senator  from  that  State.  For  several  years  the  interest 
was  paid  in  similar  bonds.  The  remainder  of  the  fund 
was  invested  in  bonds  issued  by  the  State  of  Michigan.^ 
In  1841  Congress  directed  that  the  interest,  and  "all 
other  funds  held  in  trust  by  the  United  States,  when  not 
otherwise  required  by  treaty,"  should  be  invested  in  the 
stocks  of  the  government.^  The  State  of  Arkansas,  after 
a  few  years,  stopped  paying  interest  on  its  bonds;  and 
Congress,  in  1845,  resolved  that  the  percentage  of  sales 
of  public  lands  within  the  State  to  which  it  was  entitled 
should  be  applied  toward  paying  the  interest  and  princi- 
pal of  its  bonds  held  by  the  government.^     Recalling  this 

1  The  amount  invested  in  Arkansas  bonds  was  five  hundred  thousand 
dollars,  and,  in  Michigan  bonds,  nine  thousand  dollars. 

2  Act,  Sept.  11,  27  Cong.,  first  session,  chap.  25. 

3  Res.  No.  14,  March  3,  28  Cong.,  second  session.  See  Speech  of  John 
Quincy  Adams  to  his  Constituents,  Oct.  30,  1844,  67  Niles,  p.  154. 


1853.]  APPROPRIATIONS    AND    EXPENDITURES.  597 

history  of  investing  money  by  the  treasury  department, 
Congress  wisely  declined  to  authorize  the  secretary  of 
the  treasury  to  make  other  investments.^ 

The  mode  adopted  by  the  treasury  for  buying  stock  is 
worthy  of  notice.  At  one  time  money  was  advanced  to 
brokers  to  pay  for  the  stock  purchased  by  them.  Guthrie,^ 
thinking  that  this  mode  might  "  lead  to  a  misapplication 
of  the  public  funds,  and  to  favoritism,"  discontinued  it. 
The  stock  issued  in  1843  was  due  ten  years  afterward; 
and  in  March,  1853,  the  secretary  of  the  treasury  gave 
notice  that  he  would  pay  the  principal  at  any  time  the 
owners  might  desire,  including,  also,  the  interest  due  at 
the  time  of  requesting  payment.  He  also  offered  to 
redeem  portions  of  the  stock  issued  in  1842,  1846,  and 
1847 ;  paying  par,  and  a  premium  of  twenty-one  per  cent, 
on  the  latter  stock,  eight  and  one-half  per  cent  premium 


1  Corwin  again  remarked  on  this  subject,  in  his  annual  report  sent  to  the 
House  in  January,  1853,  "  The  department  possesses  no  authority  to  pur- 
chase, at  a  rate  above  par  value,  any  portion  of  the  six-per-cent  loan  of  1847, 
and  which  is  only  redeemable  in  1867,  except  to  the  extent  of  what  balance 
may  remain  in  the  treasury  from  the  receipts  from  the  sale  of  public  lands 
after  the  interest  on  that  loan  has  first  been  paid  from  such  receipts.  As 
the  amount  of  that  stock  forms  so  large  a  portion  of  the  public  debt,  it 
would  be  desirable  that  Congress  should  remove  that  restriction  by  au- 
thorizing its  purchase  at  the  current  market-value.  By  thus  giving  a  more 
extended  scope  to  the  application  of  any  surplus  funds  in  the  treasury  for 
the  pui'chase  of  the  public  debt,  it  would  probably  enable  the  department 
to  procure  it  on  more  favorable  terms." 

2  James  Guthrie,  who  was  appointed  secretary  of  the  treasury  by  Presi- 
dent Pierce,  administered  the  finances  in  a  highly  creditable  manner.  He 
evinced  a  marked  aptitude  for  finance,  and  was  thoroughly  devoted  to  the 
interests  of  the  government.  President  Pierce  first  tendered  the  office  to 
Reuel  Williams  of  Maine,  who  had  served  in  the  National  Senate,  and 
whose  fitness  for  the  office  was  unquestionable. 


598      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1833. 

on  the  stock  of  1846,  and  sixteen  per  cent  on  the  stock 
issued  in  1842.1 

Guthrie  adopted  this  mode  of  discharging  the  debt,  not 
only  to  prevent  the  possible  loss  of  money,  but  to  retard 
accumulations  in  the  treasury.  The  increase  of  receipts 
over  expenditures  occasioned  at  times  alarm  in  commer- 
cial and  financial  circles.  The  secretary  hoped  that  "  the 
accumulations  in  the  treasury  would  exercise  a  beneficial 
restraint  upon  importations  and  speculative  credit  enter- 
prises, and  bring  the  business  of  the  country  into  a  safe 
and  wholesome  condition ;  yet,  under  the  apprehension 
that  a  panic  might  arise  from  a  too  stringent  operation  of 
the  treasury,"  he  advanced  money  to  the  mint  to  buy 
gold  and  silver  for  coinage,  beside  resorting  to  the  expe- 
dients already  mentioned  for  increasing  the  outflow  from 
the  treasury. 

His  offers  to  purchase  the  public  debt  were  issued  in 
March,  July,  and  August,  1853,  at  the  market  price ;  and 
he  succeeded  in  getting  a  large  amount  of  it,  and  aiding 
those  who  wished  to  sell  their  stocks  and  borrow  money. 
The  balance  of  the  loan  to  the  cities  lying  within  the  Dis- 
trict of  Columbia  was  paid  the  same  year,  and  also  a  part 
of  the  Texan  bonds.  "  The  fact  is  established,"  the  secre- 
tary says  in  his  annual  report  at  the  close  of  1853,  "  that 
the  public  debt  of  each  description  can  be  obtained  at 
the  premiums  offered  and  paid,  and  the  premiums  made 
be  reduced  as  the  time  fixed  by  the  terms  of  the  law  for 
redemption  approaches." 

At  the  beginning  of  Pierce's  administration,  in  March, 
1853,  the  debt  was  $69,129,937.27,  and  was  subsequently 

1  See  Annual  Treasury  Report,  December,  1853,  Appendices  D,  E,  F 


1357.]  APPPvOPRIATIONS   AND    EXPENDITURES.  599 

increased  ^2,750,000  to  liquidate  the  debt  of  Texas.  By 
the  middle  of  November,  1856,  the  figures  had  melted 
away  to  130,963,909.64.  Of  the  sum  paid,  140,916,027.63 
represented  the  principal,  and  the  balance  ($4,609,882.31) 
the  premium  on  portions  redeemed  before  maturity.  A 
saving  of  $14,606,441.39  was  effected  on  the  debt  thus 
])aid  in  advance. 

Beside  this  debt,  a  considerable  sum  was  due  to  the 
Indian  tribes,  growing  out  of  the  extinction  of  their  title 
to  the  public  land.  In  1856  this  sum  amounted  to  $21,- 
066,501.36,  and  was  payable  at  different  times.  Estimates 
were  furnished  for  making  payments,  when  they  matured, 
by  the  interior  department.  The  government  at  that 
period  had  also  invested  in  stocks,  for  several  of  the  tribes, 
$3,511,624.08. 

The  reduction  of  the  debt  was  so  rapid,  that  the  next 
year  the  government  parted  with  a  portion  of  its  revenue. 
Scarcely  had  this  been  done,  when  the  land  was  smitten 
with  another  financial  panic.  The  national  income  speed- 
ily diminished,  and  in  December  an  issue  of  twenty  mil- 
lion dollars  of  treasury-notes  became  necessary.^  The 
next  June  a  loan  of  twenty  million  dollars  of  stock  was 
authorized  to  meet  current  obligations.^  The  secretary 
of  the  treasury,  Howell  Cobb,  recommended  raising  the 
duties ;  but  Congress  did  nothing.  There  was  no  wise 
pruning  of  expenditures ;  and  the  treasury  drifted,  borne 
up  by  the  belief,  that,  when  the  financial  crash  was  over, 
importations  would  increase,  and  the  revenues  be  ample 
to  discharge,  in  due  time,  all  forms  of  public  indebtedness. 
The  treasury -notes  which  were  issued  in   1857,  payable 

1  Act,  Dec.  23,  1857,  35  Cong.,  first  session,  chap.  1.         ■'  Chap,  165. 


600      FINANCIAL  HISTOr.Y  OF  THE  UNITED  STATES.       [1860. 

in  a  year,  could  not  be  paid  when  they  matured,  and  so 
they  were  renewed  until  June,  1860 ;  ^  then  Congress 
passed  a  law  to  fund  them.  The  stock  was  not  to  exceed 
twenty-one  million  dollars  in  amount,  nor  bear  more  than 
six  per-  cent  interest.  It  was  not  to  be  paid  for  ten 
years,  and  within  twenty.  In  September,  proposals  were 
invited  for  a  loan  of  ten  million  dollars,  a  sum  large 
enough  to  meet  all  the  treasury-notes  that  would  fall  due 
before  the  1st  of  January,  1861.  Five  per  cent  interest 
was  offered,  the  secretary  believing  that  the  loan  could 
be  readily  negotiated  at  that  rate.  At  that  time  the  five- 
per-cent  stock  of  the  United  States  was  selling  in  the 
market  at  a  premium  of  three  per  cent.  The  whole 
amount  was  taken  at  j)ar  or  a  small  premium  ;  but,  be- 
fore payment  was  made,  another  destructive  wave  rolled 
over  the  land,  and  many  of  the  bidders  were  unable  to 
respond.  Some  did  so  at  a  considerable  sacrifice,  and 
others  were  nursed  by  extending  the  time  of  payment. 
The  entire  amount  thus  borrowed  was  seven  million  and 
twenty-two  thousand  dollars. 

When  Congress  met  in  December,  eleven  million  dol- 
lars of  the  stock  authorized  to  pay  the  treasury-notes  had 
not  been  issued.  The  secretary  declared  that  "the  diffi- 
culties attending  the  payment  of  the  stock  already  sold, 
in  connection  with  the  fact  that  capitalists,  in  the  present 
condition  of  the  country,  were  unwilling  to  invest  in 
United-States  stock  at  par,  render  it  almost  certain  that 
this  remaining  eleven  millions  cannot  now  be  negotiated 
upon  terms  acceptable  to  the  government.  The  condition 
of  the  treasury  is  such  that  no  serious  delay  can  be  in- 

1  3G  Coug.,  first  session,  chap.  180. 


I860.]  APPROPRIATIONS    AXD    EXPENDITURES.  601 

dulged."  He  recommended  a  repeal  of  the  law  enacted 
the  previous  year,  so  far  as  it  authorized  the  issue  of  eleven 
million  dollars  more  stock,  and  that  authority  be  given 
for  issuing  an  equal  amount  of  treasury-notes  at  such 
rates  as  would  command  the  confidence  of  the  country. 
To  create  that  confidence,  he  recommended  that  the  public 
lands  be  unconditionally  pledged  for  the  ultimate  redemp- 
tion of  all  the  treasury -notes  that  might  be  issued.  "  I 
make  this  recommendation,"  he  adds,  "of  substituting 
treasury-notes  for  stock,  the  more  readily,  from  the  con- 
viction that  there  should  always  exist,  in  the  department, 
power  to  issue  treasury-notes  for  a  limited  amount,  under 
the  direction  of  the  President,  to  meet  unforeseen  con- 
tingencies. It  is  a  power  which  can  never  be  abused ;  as 
the  amount  realized  from  such  source  can  only  be  used  to 
meet  lawful  demands  upon  the  treasury.  No  secretary  of 
the  treasury,  or  President,  would  ever  exercise  it,  except 
compelled  to  do  so  by  the  exigencies  of  the  public  service  : 
on  the  other  hand,  it  would  enable  the  government  to 
meet,  without  embarrassment,  those  sudden  revulsions  to 
which  the  country  is  always  liable,  and  which  cannot 
always  be  anticipated."  Congress  authorized  the  issue 
of  ten  million  dollars  of  treasury-notes  in  lieu  of  eleven 
million  dollars  of  stock,  redeemable  at  the  end  of  one  year 
from  date,  and  bearing  six  per  cent  interest  until  called 
for  redemption.  The  secretary,  however,  was  authorized 
to  issue  them,  after  advertisement,  at  such  rates  of  inter- 
est as  might  be  offered  by  the  lowest  responsible  bidders.^ 
Notes  were  soon  afterward  issued,  under  this  Act,  for  the 
following  amounts,  at  the  rates  specified :  — 

^  Act,  Dec.  17,  18G0,  36  Coug.,  second  session,  chap.  1. 


602      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1860. 


Per 


^70,200 

5,000 
24,500 
33,000 
10,000 
65,000 
10,000 
160,000 
77,000 


cent. 

6 

7 
8 

8i 
81 


9^ 
9a 


Per  cent. 

1^1,027,500 10 

266,000 10^ 

623,000 10^ 

1,367,000 lOf 

1,432,700 11 

4,840,000 12 


$10,010,900 


The  public  debt  on  the  1st  of  July,  1860,  exceeded  sixty- 
four  millions ;  and  this  large  increase  had  been  caused, 
not  by  any  extraordinary  outlay,  but  solely  by  reducing 
the  revenues  to  a  foolishly  low  point.  It  is  true,  when 
the  tariff  of  1857  was  amended,  a  financial  crisis  was  not 
expected  ;  but,  even  if  it  had  not  come,  the  prosperity 
of  no  business  was  hazarded  by  letting  the  tariff  remain. 
By  lowering  the  rates,  and  sinking  the  receipts  below  the 
expenditures,  and  doing  nothing  to  extricate  the  govern- 
ment from  that  situation  for  three  years,  its  credit  was 
seriously  shaken.  For  such  financial  mismanagement  no 
possible  excuse  could  be  given. 

The  political  horizon  darkened  near  the  close  of  1860. 
Cobb,  the  secretary  of  the  treasury,  resigned  a  few  days 
after  making  his  annual  report,  and  Philip  F.  Thomas  of 
Maryland  was  appointed  his  successor ;  but  he  remained 
at  the  head  of  the  treasury  department  only  a  month, 
and  then  John  A.  Dix  succeeded,  who  served  during  the 
remainder  of  President  Buchanan's  term.  It  was  while 
Gen.  Dix  administered  the  finances,  therefore,  that  the 
treasury-notes  above  mentioned  were  sold.  So  low  had 
the    credit   of  the   government   fallen,  he   recommended 


1S61.]  APPROPEIATIONS    AND   EXPENDITURES.  603 

to  the  Committee  of  Ways  and  Means  that  the  States 
be  asked  to  secure  the  repayment  of  money  which  the 
government  should  borrow  by  pledging  the  public  de- 
posits received  by  them  in  1836.  He  thought  that  a  loan 
resting  on  such  a  basis  might  receive  the  favorable  atten- 
tion of  capitalists.^ 

On  the  1st  of  February  the  committee  reported  a  bill 
authorizing  a  loan  of  125,000,000.  The  secretary  of  the 
treasury  had  previously  declared  that  there  would  be  a 
probable  deficit  in  the  revenue  of  $21,677,524.  The  de- 
ficiency bill  contained  appropriations  amounting  nearly  to 
$3,000,000 :  thus  there  was  an  estimated  deficiency  of 
$24,000,000 ;  while  the  amount  in  the  treasury  on  the  1st 
of  January  was  only  $2,233,220.  Imports  had  very  much 
declined  in  consequence  of  political  complications. 

The  bill  was  ojjposed  on  the  ground  that  the  secretary- 
still  possessed  the  power,  under  the  Act  of  June,  1 860,  to 
borrow  fourteen  million  dollars,  and  that  this  amount,  at 
least,  should  be  deducted  from  the  proposed  loan ;  but  the 
answer  given  was,  that  the  balance  of  the  June  loan  could 
not  be  sold  at  the  terms  prescribed  in  the  law,  and,  if  it 
could  be,  that  the  money  must  be  employed  to  redeem  the 
treasury-notes  of  1860.  The  bill  passed ;  and  the  Presi- 
dent was  authorized  to  borrow,  at  any  time  before  tlie  1st 
of  July,  twenty-five  million  dollars  to  pay  current  de- 
mands on  the  treasury,  or  to  redeem  treasury-notes.  The 
stock  was  to  bear  not  more  than  six  per  cent  interest,  and 
was  to  be  reimbursable  after  ten  and  before  twenty  years. 
Under  this  authority,  bonds  were  issued  to  the  amount  of 

1  Letter  to  Com.  of  "Ways  and  Means,  Jan.  18,  1861,  No.  20,  Mis.  Doc, 
36  Cong,,  second  session. 


% 
604      FINAKCIAL  HISTORY  OF  THE  UNITED  STATES.      [1861. 


^,415,000,  "  at  an  aggregate  discount  of  $2,019,776.10, 
or  an  average  rate  of  (^89.03  per  one  hundred  dollars."  ^ 

Only  one  other  financial  measure  jDassed,  in  the  last 
hours  of  President  Buchanan's  administration,  requiring 
notice.  Ever  since  the  panic  of  1857  the  public  debt 
had  been  increasing ;  and  the  secretary  of  the  treasury 
remarked  in  his  report  presented  in  December,  1859,  that 
the  idea  of  increasing  the  public  debt  to  meet  the  ordi- 
nary expenses  of  the  government  should  not  be  enter- 
tained for  a  moment.  Nevertheless,  this  idea  had  been 
entertained  since  July,  1857,  as  the  following  figures 
clearly  show :  — 

Balance  in  treasury,  July  1,  1857          .         .  $17,710,114  27 

Public  debt,  July  1,  1857      ....  29,060,386  90 

Public  debt,  July  1,  1858      ....  44,910,777  66 

Public  debt,  July  1,  1859      ....  58,754,699  33 

Public  debt,  July  1,  1860      ....  64,769,703  08 

Balance  in  treasury,  July  1,  1860          .         .  3,629,206  71 

Debt,  less  balance  in  treasury,  July  1,  1857  .  11,350,272  63 

Debt,  less  balance  in  treasury,  July  1,  1860  .  61,140,496  37 

A  bill  to  repay  outstanding  treasury-notes,  to  authorize 
a  loan,  and  to  regulate  and  fix  the  duties  on  imports,  was 
introduced  into  the  House,  March  12,  1860.  One  object 
of  this  bill  was  to  increase  the  revenues.  It  was  warmly 
debated  at  that  session,  but  did  not  pass  both  Houses.  At 
the  next  meeting  of  Congress  the  bill  was  further  consid- 
ered ;  and,  after  many  of  the  Southern  members  had  left 
that  body,  it  was  passed,  becoming  a  law  on  the  2d  of 
March,  1861.  The  contest  over  it  had  centred  mainly 
on  the  provisions  which  related  to  an  increase  of  the  tariff. 

1  Act,  Feb.  8,  1861,  36  Cong.,  second  session,  chap.  29. 


1861.]  APPROPRIATIONS    AND    EXPENDITURES.  605 

By  this  law  the  President  was  authorized  to  borrow, 
within  one  year  from  its  enactment,  not  more  than  ten 
million  dollars,  Avhich  were  to  be  applied  in  discharging 
appropriations  and  treasury-notes  then  outstanding.  No 
contract  could  be  made,  preventing  the  government  from 
reimbursing  the  amount  borrowed,  at  any  time  after  ten 
years  from  the  first  day  of  July  next  ensuing.  If  the 
proposals  made  for  the  loan  were  not  satisfactory,  the 
President  was  authorized  to  issue  treasury-notes,  instead 
of  borrowing  money,  for  the  full  amount  of  the  loan  au- 
thorized, and  also  to  substitute  treasury-notes  for  the 
whole  or  any  part  of  the  money  which  he  was  authorized 
to  borrow  by  previous  Acts.  Notes  issued  under  this  law 
were  to  be  redeemed  within  two  years  from  its  date. 
How  the  law  was  executed  will  be  stated  hereafter. 

Such  is  the  miserable  ending  of  the  chapter  on  finances 
while  they  were  managed  by  the  South  under  the  quasi 
administration  of  James  Buchanan.  During  the  few 
months  that  Gen.  Dix  managed  them,  he  displayed  wis- 
dom and  vigor ;  but  the  evils  previously  wrought  through 
a  long  course  of  mal-administration  could  not  be  easily 
nor  quickly  cured. 

During  the  seventy  years  covered  by  this  volume,  the 
income  and  expenditure  of  the  government  had  greatly 
expanded.  The  appropriation  laws  multiplied  in  number, 
and  increased  in  amount.  For  the  year  ending  the  31st 
of  June,  1860,  .^58,331,650.38  were  appropriated,  mainly 
by  t'he  following  entitled  laws :  military  academy  ;  Indian 
department;  consular  and  diplomatic  expenses;  naval 
service ;  legislative,  executive,  and  judicial ;  sundry  civil 
expenses ;   army  ;    pensions ;  and  lighthouses  and  buoys. 


606      FINANCIAL  HISTORY  OF  THE  UNITED  STATES.       [1860. 

For  the  public  debt  there  was  an  appropriation  of  '$2,379,- 
841.78,  and  $15,228,483.93  for  treasury-notes.  The  appro- 
priations for  that  year  were  thus  classified  by  the  treasury 
department :  ^  — 


Civil  list  .  . 
Miscellaneous  . 
Foreign     inter 

course  .  . 
Pensions  .  . 
Indian     depart 

ment  .     .     . 
Chickasaw  fund 
Military  establish 

ment  .  .  . 
Surveys  .  .  . 
Fortifications  . 


$6,032,070  81 

21,697,188  71 

1,115,025  46 

991,784  02 

2,698,387  91 

71,690  10 

14,174,420  23 

135,000  00 

645,000  00 


Internal  improve- 
ments .     .     .     . 

Naval  establish- 
ment .     .     .     . 

]\Iarine  corps   .     . 

Smithsonian  Insti- 
tution .     •     .     . 

Public  debt      .     . 
Treasury-notes 


$478,912  41 

9,616,088  48 

663,394  55 

12,687  70 

158,331,650  38 

2,379,841  78 

15,228,483  93 

175,939,976  09 


The  appropriation  laws  were  framed  with  more  care 
than  in  the  beginning,  5'et  were  very  defective.  Con- 
gress has  never  shown  that  regard  for  economy  in  ap- 
propriating public  money  which  enstamps  the  highest 
order  of  legislation.  Sometimes  expenditures  have  been 
authorized  by  the  law  which  appropriated  money  to  pay 
for  them.  Sometimes  other  matters  of  legislation  have 
been  crowded  into  appropriation  laws.  The  power  of 
transferring  appropriations  from  one  branch  of  the  navy 
department  to  another  branch  of  it,  by  order  of  the  Presi- 
dent, existed  for  many  years. 

The  Committee  of  Ways  and  Means  in  1842,  when  inves- 
tigating the  subject  of  civil  and  diplomatic  appropriations, 
declared  that  many  appropriations  had  been  made  for  a 


1  Ex.  Doc,  Receipts  and  Expenditures,  No.  12, 36  Cong.,  second  session. 


I860.]  APPROPRIATIONS    AND    EXPENDITURES.  607 

lono-  time  without  authority  of  Law.     It  was  then  enacted 
that   the    heads   of   departments,  in  communicating  esti- 
mates  of  expenditures   to  Congress,  shoukl    specify  the 
sources  from  which  such  estimates  were  derived,  and  the 
calculations  on  which  they  were  founded,  and  should  dis- 
criminate between  conjectural  estimates  and  those  framed 
on  actual  information.     They  were  also  required  to  refer 
to  the  laws  or  treaties  authorizing  the  proposed  expendi- 
tures.    Subsequently,  the  secretary  of  the  treasury  was 
required  to  prepare  the  estimates  of  appropriations  early 
enough  for  the  clerk  of  the  House  to  distribute  them  at 
the  opening  of  every  session.    Congress  afterward  enacted 
that  all  estimates  for  the  compensation  of  officers  should 
be  founded  on  specific  laws,  and  not  on  "  the  authority  of 
executive  distribution."     Laws  were  made  for  the  guid- 
ance  of  the   heads   of  departments  with  respect   to  ap- 
propriations for  the  erection  of  public  buildings,  or  the 
construction  of  other  public  works.     They  were  also  re- 
quired to  designate  in  their  estimates  of  expenditures  for 
the  approaching  year,  beside  the  amount  needed  therefor, 
the  amount  of  the  outstanding  appropriation  which  would 
probably  be  required  for  each  particular  item  of  expendi- 
ture.    In  1860  Congress  prescribed  a  very  complete  plan 
for  the  naval  department  to  follow  in  giving  estimates  for 
expenditures.    At  a  later  date,  laws  were  enacted  relating 
to  the  estimates  of  other  departments. 

Beside  the  usual  appropriations  made  every  year  for 
maintaining  the  government,  there  were  other  appropria- 
tions for  the  payment  of  claims,  whose  validity  was  de- 
termined by  Congress.  They  were  infected  with  some 
irregularity,  which   prevented    claimants  from   obtaining 


608      riNANCIAL  HISTOKY  OF  THE  UNITED  STATES.       [1855. 

a  settlement  through  the  departments.  Some  of  these 
chxims  were  fraudulent :  on  the  other  hand,  many  of  them 
were  obviously  just,  yet  could  not  be  paid  under  the  laws 
and  regulations  established  for  the  guidance  of  the  de- 
partments. In  these  cases,  therefore,  the  claimant  could 
appeal  only  to  Congress  for  relief. 

Accordingly,  in  179-4,  a  committee  of  claims  were  ap- 
pointed, to  whom  these  matters  were  referred,  and  who 
investigated  them,  and  reported  thereon  to  Congress. 
The  committee  had  jurisdiction  of  all  claims  against  the 
United  States  in  which  money  was  demanded,  or  a  release 
from  paying  it  to  the  government  was  desired,  or  in 
which  the  claims  had  reference  to  public  lands,  or  per- 
tained to  a  pension. 

The  business  of  the  committee  grew  so  heavy,  that  a 
division  of  it  became  necessary.  Consequently,  in  1805, 
Congress  created  the  committee  on  public  lands ;  eight 
years  later,  that  on  pensions  and  Revolutionary  claims ; 
in  1816,  the  committee  on  private  land  claims ;  in  1825, 
that  on  Revolutionary  pensions ;  and  six  years  afterwards, 
another  on  invalid  pensions. 

Notwithstanding  this  division  of  the  business,  many 
claims  were  not  considered  each  session,  because  there  was 
not  time.  In  the  earlier  years  of  the  government,  a  strict 
adherence  to  statutes  of  limitations,  requiring  the  presen- 
tation of  claims  within  a  short  period,  debarred  many 
claimants.  Not  only  was  much  time  consumed  by  such 
investigations,  but  these  were  often  imperfect;  and  the 
unfitness  of  a  committee  of  Congress  to  serve  as  a  tribu- 
nal to  hear  and  adjust  these  matters  was  apparent  long 
before  any  remedy  was  applied.     Finally,  in  1855,  Con- 


I860.]  APPROPRIATIONS    AND   EXPENDITURES.  609 

gress  established  a  court  of  claims,  to  which  claims  against 
the  government  were  referred.^  Though  performing  a 
good  service,  the  jurisdiction  of  this  tribunal  should  be 
enlarged,  statutes  of  limitation  need  reviving,  and,  when 
claims  have  been  heard  and  determined,  further  proceed- 
ings should  be  forbidden.^ 

1  Report,  April  26,  1848,  No.  498,  30  Cong.,  first  session. 
-  Richardson's  History,   Jurisdiction   and   Practice   of   the   Court   of 
Claims. 


IJ^DEX. 


A. 

Accounting,  report  of  committee  on 
system  existing  in  the  treasury  de- 
partment, 567 ;  arrangement  of  offi- 
cers, 569;  criticism  on  tlie  system, 
570;  number  employed,  571;  mode 
of  adjusting  accounts,  571-573;  crit- 
icism on  it,  573;  abolition  of  triple 
examinations,  573;  abolition  of  of- 
fices, 574  ;  report  of  committee  on 
tenure  of  oflSce,  574  ;  regulations 
concerning  contracts,  574,  575 ; 
change  of  fiscal  year,  575. 

Accounts  of  old  treasury  board  un- 
der the  Confederation,  7;  how  kept 
in  the  beginning,  14;  how  duties 
and  loans  were  received,  14;  war- 
rants for  receipts  and  disburse- 
ments of  money,  15 ;  different 
modes  of  receiving  money  ex- 
plained, 15 ;  how  disbursements 
were  made,  16 ;  preservation  of 
system,  17  ;  difficulty  in  keeping 
account  of  different  revenues,  56; 
improvements  in  accounting  for 
money,  189. 

Appleton,  Nathan,  on  the  tariff,  421, 
424. 

Appropriation  bills,  estimates  very 
general  at  first,  182;  Gallatin  tried 
to  make  them  more  specific,  182; 
"Wolcott  opposed  to  this,  182;  rev- 
enues at  first  specified  for  paying 
appropriations,  183;  bills  become 
more  specific,  183;  permanent  ai> 
propriations,  184 ;  application  of 
money  appropriated,  184 ;  construc- 


tion of  bills  by  treasury  depart- 
ment, 185;  appropriations  to  cease 
after  two  years,  186;  appropriation 
of  money  to  be  spent  by  order  of 
the  President,  187  ;  investigation 
into  apijlication  of  money  appro- 
priated, 187-189;  improvements  in 
appropriating  money,  189;  basis  of 
receipts  and  expenditures,  191 ;  first 
appropriation  bill,  191;  sources  of 
revenue,  192;  increase  of  exijendi- 
ture,  193;  appropriation  for  navy, 
193;  opposed  by  Gallatin  and  his 
party,  194;  further  expenditure  on 
the  navy,  195-197;  weakening  of 
the  credit  of  the  government,  197. 
Appropriations  and  expenditures, 
1815-1828,  increase  of  receipts  in 
1815,  518 ;  difficulty  in  making  esti- 
mates, 518;  what  Dallas  proposed, 
519-521;  unexpended  balances,  521; 
condition  of  treasury  when  Craw- 
ford accepted  office,  522;  financial 
reforms  introduced,  52^525;  how 
payments  to  and  by  the  govern- 
ment were  made,  523;  difficulty  in 
estimating  receipts  and  expendi- 
tures, 525-527;  repeal  of  internal 
revenue,  527,  528;  increase  of  ex- 
penditures, 528;  decline  in  revenue 
and  loans  required,  528;  hesitation 
in  retrenching,  529-532 ;  commit- 
tees of  Congress  on  the  situation, 
529,  538 ;  also  select  committee, 
530;  effect  of  paper  money  in  di- 
minishing the  revenue,  531;  loaUvS 
made  by  government  to  individ- 
uals, 532 ;  financial  reforms,  532- 
611 


612 


INDEX. 


535  ;  Rush's  administration  of  the 
treasury,  535-537  ;  condition  of,  at 
close  of  his  term,  53(5. 
Appropriations  and  expenditures, 
1828-1840,  increase  of  imports  in 
1828,  539 ;  unsatisfied  appropria- 
tions, 539-541;  increase  of  expendi- 
tures, 541,546,547;  removal  of  de- 
posits, 542;  investigation  of  postal 
department,  543-545;  accumulation 
of  money  in  the  treasury,  545,  547, 
548 ;  revenue  from  public  lands, 
545;  failure  of  the  banks,  548;  Con- 
gress convened,  and  secretary's  re- 
port to,  549;  laws  to  aid  the  treas- 
ury, 550;  issue  and  redemption  of 
treasury-notes,    550,   551,   552 ;    re- 

.  ceiving  of  notes  of  suspended 
banks  by  the  government,  551  ; 
fluctuation  of  revenue,  552  ;  Wood- 
bury's recommendations  in  an- 
nual report  of  1836,  553  ;  necessi- 
ty of  adopting  a  plan  for  keep- 
ing the  surplus,  554  ;  sub-treasury 
established,  555  ;  slow  reduction  of 
expenditures,  556 ;  corruption  of 
government  officers,  556 ;  condi- 
tion of  treasury  at  the  close  of 
Woodbury's  term,  565. 

Appropriations  and  expenditures, 
1840-1860,  increase  of  indebted- 
ness,576;  Ewingrecommends  fund- 
ing the  treasury-notes,  577;  Spen- 
cer's issue  of  treasury-notes,  577- 
579 ;  failure  to  negotiate  loan  in 
Europe,  580;  need  of  retrenchment, 
580 ;  assumption  of  State  debts, 
580-582;  the  change  of  secretaries 
during  Tyler's  administration,  582; 
why  Spencer  resigned,  583;  Bibb's 
views  on  re<lucing  the  debt,  583  ; 
committee  differ  from  him,  583  ; 
wasteful  expenditures,  584-587  ; 
Spencer's  estimate  of  expenditure 
criticised  by  committee,  587-589  ; 
taxation  of  tea  and  coffee,  587;  in- 
crease in  1844  of  revenue,  589;  un- 
expended appropriations,  589;  tariff 
revised,  589  ;  loans  contracted  to 
carry  on    Mexican  war,    590-594  ; 


cost  of  the  war,  594  ;  reduction  of 
the  debt,  595;  premium  paid  by  the 
government  to  olitain  it,  595,  598  ; 
modes  of  buying  stock,  597;  amount 
of  debt  at  beginning  of  Pierce's  ad- 
ministration, 598  ;  amount  due  to 
Indian  tribes ,  599  ;  reduction  of 
revenue,  599;  issue  of  more  treas- 
ury-i!otes,  600,  602;  public  debt  in 
July,  1800,  602,  604  ;  condition  of 
treasury  at  end  of  1860,  602  ;  Feb- 
ruary loan  of  1861,  603;  March  loan 
of  1861,  604  ;  number  of  appropria- 
tion laws  in  1860,  605  ;  their  defec- 
tive nature,  606  ;  amount  appro- 
priated, 606  ;  additional  require- 
ments in  making  estimates,  606  ; 
establishment  and  efficiency  of 
court  of  claims,  607-609.  Gallatin ; 
War  of  1S12. 
Astor,  John  Jacob,  subscribes  to  gov- 
ernment loan,  227. 


B. 


Bacon,  Ezekiel,  chairman  of  commit- 
tee of  ways  and  means,  245. 

Bank,  first  United-States,  necessity 
for,  127;  powers  of,  128;  how  gov- 
ernment iiaid  for  its  stock,  129-131 ; 
loans  from  the  bank,  131-139  ;  du- 
ties pledged  for  their  payment,  131 ; 
different  kind  of  loans,  132-135 ; 
delay  in  reimbursing  them,  135- 
139  ;  opposition  of  Jefferson  and 
others  to  the  bank,  139-142  ;  gov- 
ernment money  deposited  with  it, 
142  ;  benefits  received  by  the  gov- 
ernment from  it,  143  ;  complaints 
of  partisanship  in  accommodating 
the  public,  144  ;  stockholders  pe- 
tition for  renewal  of  charter,  145  ; 
Gallatin  favored  renewal,  145  ;  de- 
bate on  the  subject,  147-152  ;  vote 
on  renewal,  151  ;  withdrawal  of 
deposits,  152  ;  effect  of  not  renew- 
ing the  charter,  152-155  ;  notes 
everywhere  received,  261. 

Bank,  second  United-States,  Dallas 


INDEX. 


613 


recommends  it,  278  ;  State  banks 
opposed  to  it,  279;  also  speculators 
in  exchange,  281 ;  jNIadisou  vetoes 
first  charter,  280  ;  bank  generally 
favored,  317  ;  object  of  establishing 
it,  317  ;  capital  and  powers,  318  ; 
extent  of  depreciation  of  money  at 
time  of  beginning  operations,  318  ; 
prosperity  of  State  banks,  319 ; 
causes  favoring  resumption,  320 ; 
arrangements  for  resuming,  320- 
323;  first  use  of  its  notes,  323;  con- 
sequence of  policy  first  adopted  in 
issuing  them,  323,  324  ;  specie  im- 
ported, 325  ;  discounts  curtailed, 
325  ;  policy  adopted  by  Cheves, 
326,  328  ;  success  in  restoring  spe- 
cie payments,  328  ;  bank  equalizes 
rates  of  exchange,  330  ;  effect  of 
contracting  discounts,  329  ;  Ra- 
guet's  report  on  the  subject,  329  ; 
nature  of  circulation  furnished  by 
the  bank,  331-334  ;  Jackson's  en- 
mity to  it,  334  ;  views  of  Ingham, 
McLane,  and  Duane,  336,  343;  sen- 
sation produced  by  removing  them, 
338;  Taney's  report  on  the  subject, 
338-340  ;  Congress  deems  his  rea- 
sons insufticient,  340  ;  opinion  of 
merchants,  340-343  ;  effort  of  the 
bank  to  renew  its  charter,  343 ; 
President  vetoes  the  bill  for  re- 
newal, 343 ;  Senator  Clayton's 
prophecy,  343;  subsequent  conduct 
of  the  bank  toward  the  govern- 
ment, 344;  value  of  its  stock  when 
charter  expired,  345 ;  settlement 
with  the  government,  345.  Banks. 
Banks,  State,  in  existence  when  first 
United-States  bank  was  founded, 
127;  use  of  their  notes  by  the  gov- 
ernment, 20,  551 ;  increase  of,  after 
the  close  of  first  United-States 
bank,  154,  261  ;  amount  in  1812  of 
their  capital,  219  ;  their  notes  re- 
placed those  of  former  bank,  261; 
subscribe  freely  to  national  loans, 
262;  inexcusable  course  in  expend- 
ing their  notes,  263  ;  suspend  spe- 
cie payments,  264;  profess  a  desire 


to  resume  them,  265;  effect  of  sus- 
pending, 265-268;  government  de- 
prived of  its  deposits,  269  ;  loss  to 
government  from  State  banks,  225; 
Dallas  asks  them  to  assist  the 
treasury,  270;  unfitness  of  treasury- 
notes  to  serve  as  bank  circulation, 
271;  how  the  notes  of  State  banks 
were  received  by  the  government, 
272  ;  debt  increased  by  accepting 
depreciated  bank-notes,  273  ;  other 
ways  in  which  they  affected  the 
government,  274-276  ;  might  have 
assisted  the  government  and  indi- 
viduals more  than  they  did,  277  ; 
Dallas's  proposition  to  the  banks 
to  resume  specie  payments,  282  ; 
amount  of  their  specie  282 ;  prosper- 
ity of,  at  time  of  establishing  second 
United-States  bank,  319  :  deposits 
restored  to  them  in  1833,  346;  effect 
of  the  change,  346-351  ;  rapid  in- 
crease of  State  banks,  346  ;  efforts 
of  government  to  circulate  more 
specie,  347;  bank  accommodations 
increase  speculation,  348 ;  specie 
circular,  348,  350  ;  banks-fail,  351  ; 
condition  of  bank  circulation  at 
the  time,  351 ;  banks  keep  deposits 
from  1840  to  1846,  354. 

Barker,  Jacob,  his  loans  to  the  gov- 
ernment, 231-234. 

Baring,  Alexander,  buys  the  govern- 
ment bank-stock,  66. 

Bell,of  Tennessee,on  the  tariff ,421 ,422. 

Benton,  Senator,  on  the  tariff,  403, 
404,  405,  406  ;  coinage,  347. 

Bibb,  secretary  of  the  treasury.  Ap- 
propriations, 1840-1860. 

Biddle,  Nicholas,  effect  on  prices  of 
excessive  paper  issues,  410.  Bank, 
Second  United-States. 

Bondinot,  on  importing  cents,  167;  on 
coinage,  165. 

Bradford,  Samuel  D.,  effect  of  tariff- 
law  of  1828  on  prices  of  imports, 
407-409. 

Brougham.  Loi-d,  on  stifling  Amer- 
ican manufactures,  359. 

Buchanan,  on  the  tariff,  376-378. 


614 


INDEX. 


C. 

Campbell,  appointed  secretary  of  the 
treasury,  297;  his  inefliciency,  297. 
Loans ;  War  of  1812. 

Canadian  goods,  drawback  ou,  485. 

Canning  resolves  to  crush  American 
commerce,  212;  his  success,  284. 

Cheves.  Langdou,  declines  office  of 
secretary  of  the  treasury,  297  ;  his 
administration  of  second  United- 
States  bank,  326. 

Claiborne,  on  the  tariff,  401  ;  estab- 
lishes a  bank  at  New  Orleans,  142. 

Claims,  establishment  of  court  of, 
607-609. 

Clay,  on  the  tariff,  362,  368,  410,  413, 
424.     Tariff. 

Clayton,  Senator,  his  prophecy,  343. 

Cobbett,  on  the  growth  of  American 
manufactures,  288. 

Coinage,  Spanish  dollar  the  basis  of 
reckoning,  156  ;  need  of  mint  and 
money  standard,  156  ;  Hamilton's 
report  on  the  subject,  156-159;  Jef- 
ferson's report,  159;  establishment 
of  mint,  159  ;  value  of  coins  fixed, 
159,  161;  coinage  free,  162;  control 
of  mint  given  to  State  department, 
161 ;  difficulties  in  coining,  161- 
165 ;  alteration  of  standard  by  mint 
officers,  161-163  ;  money  appropri- 
ated to  purchase  bullion,  165;  com- 
pensation for  refining,  165;  amount 
coined  at  end  of  century,  166;  clos- 
ing of  mint  urged,  166  ;  coinage  of 
cents,  167  ;  removal  of  mint,  168  ; 
greater  efficiency  of,  168  ;  expense 
of,  to  1809,  168  ;  circulation  of  for- 
eign coins,  169-174  ;  Quincy's  re- 
port, 171 ;  Gallatin's  views,  172- 
174;  efforts  of  Jackson  and  Benton 
to  increase  specie  circulation,  347  : 
change  in  relative  value  of  gold 
and  silver,  502;  Dallas's  remedy  to 
prevent  exporting  gold,  503;  expor- 
tation ]irior  to  1812  of  gold,  503; 
exportation  of  American  silver,  504 ; 
exportation  prevented  by  the  rate 
of  exchange,  .504;  Lowndes's  report 


on  coinage,  505;  Patterson's  recom- 
mendation on  the  subject,  506 ; 
"Whitman's  report,  506  ;  Sanford's 
report,  511"  :  Ingliam's  report,  507  ; 
White's  report  from  select  commit- 
tee, 507-509;  law  of  18.>1,  509;  Reid's 
criticisms  on  the  law,  511:  coinage 
of  gold  dollar,  511;  why  so  little 
gold  was  coined,  511;  paj-ment  for 
gold  and  silver  deposited  in  the 
mint,  512,  514;  exjiense  of  coining 
to  depositors,  513;  Corwin  recom- 
mends the  issue  of  mint  certificates, 
514;  establishment  of  branch  mints, 

515  ;  circulation  of  foreign  money, 

516  ;  amount  and  expense  of  coin- 
age, 516. 

Commerce,  85.     Tonnafje  Duties. 

Comi^troller,  duties  of,  6.  Account- 
ing. 

Corwin,  on  coinage,  514.  Appropria- 
tions, 1840-1860. 

Crawford,  speech  in  favor  of  renew- 
ing charter  of  United-States  bank, 
151.  Debt,  Payment  of ;  Appropria- 
tions, 1815-1828. 


D. 


Dallas,  A.  J.,  Madison  desires  to  ap- 
point him  secretary  of  the  treasu- 
ry, 2i)(j;  oiijjosition  of  Pennsylvania 
senators,  297;  Dallas  appointed, 
298;  report  on  tariff,  360-362;  his 
administration  of  the  office,  298- 
300,  522.  Ap])ropriations,  1815-1828 : 
War  of  1812,  Debt,  Payment  of. 

Dallas,  Vice-President,  vote  on  tariff- 
bill  of  1846,  452. 

Debt,  funding  of  the  Revolutionary, 
22;  Hamilton  instructed  to  prepare 
a  report  on,  22;  different  kinds  of, 
23;  Hamilton's  plan,  23;  opposi- 
tion to  it,  24;  Hamilton  urged  pay- 
ment in  full,  24;  plan  for  funding 
first  portion,  24;  funding  of  interest 
thereon,  25;  assumption  of  debts 
incurred  by  States,  25;  opposition 
of  Southern  members,  25;  nature 
of  this  part  of  the  debt,  26;  amount, 


INDEX. 


615 


27;  plan  adopted,  27;  provision  for 
non-suhscribers,    28;    funding    of 
debts  between  States  and  the  gov- 
ernment, 29;  Hamilton's  first  re- 
port after  passage  of  funding-law, 
30;  acceptance  of  plan  voluntary, 
30;  the  law  a  compromise,  31;  op- 
position to  any  plan,  32;    second 
report  on  the  funding-law,  33,  35; 
extension  of  time  for  preventing 
debt,  36,  39;  justice  of  assuming  all 
the  debts,  36;  Gallatin's  criticism 
on  the  funding-system,  37-39;  report 
on  the  debts  between  the   States 
and  the  government,  39;  action  of 
Congress  thereon,  40;  subsequent 
action  of  the  States  and  Congress. 
40,41. 
Debt,  payment  of  the  Revolutionary, 
42;  revenue  pledged  for  that  pur- 
pose, 42,  45;  new  loans  to  pay  for- 
eign    debt,    43,    58;    purchase    of 
debt,  44;    regulations  for  paying, 
45;  Hamilton  reports  another  plan 
for  redeeming  debt,  47,  50;  law  en- 
acted in  1795  on  the  subject,  50; 
criticisms  of  Gallatin  and  commit- 
tee in  1802  on  the  mode  of  paying, 
52-55;    final  mode,  55;    how  pay- 
ment was  made,  57;  discharge  of 
debt  with  foreign  funds,  59;  pay- 
ment of    interest  and  instalments 
on  foreign  loans,  60-^i2;  slow  reduc- 
tion in  the  beginning,  62;  annuity 
raised    to    reduce    the    debt,    63; 
means  received  by  Wolcott  for  that 
purpose,  63;   causes  of  increase  of 
debt,  64;  progress  of  reduction,  65; 
Gallatin's    difliculty   in    remitting 
to  Holland,  65;  debt  increased  by 
Louisiana  purchase,  66;  reduction 
thereafter,  67;   exchange  of  debt, 
69;  debt-paying  impeded  by  war, 
69;    reduction   made   by  Gallatin, 
70-72;  no  reduction  when  Hamil- 
ton resigned,  178;  payment  of,  dur- 
ing war  of  1812,   303;    amount  in 
October,  1816,  304;  funding  of  treas- 
ury-notes, 304;  Dallas's  recommen- 
dations concerning  the  debt,  301; 


enlargement  of  sinking-fund,  305- 
307;  large  reduction,  306;  Craw- 
ford recommends  purchase  of  stock, 
307;  Congress  decides  otherwise, 
308;  exchange  of  stock,  308;  further 
exchange  of  stock  proposed,  309- 
311;  amount  held  abroad,  311;  re- 
duction during  Crawford's  time, 
311;  Rush's  recommendations,  312; 
reduction  under  sinking-fund  law 
of  1817,  313;  rise  in  price  of  stock, 
including  three  per  cents,  314; 
rapid  payment  of,  314;  notice  of 
final  payment,  315.  For  creation 
and  payment  of  subsequent  debts, 
see  Appro}viations,  182S-1840,  and 
1840-1860. 
Debts  of  States,  assumption  of,  in 

1842,  580-582. 
Deposits  first  kept  in  banks,  18;  no 
law  until  1816,  18,  20;  the  kind  of 
money  received,  20;  deposits  kept 
with  first  United-States  bank,  142; 
withdrawal  of,  152;  action  of  State 
banks  in  retaining  government  de- 
posits, 269;  removal  of,  from  second 
United-States  bank,  542;  govern- 
ment lost  nothing  from  national 
banks,  21.  Bank,  First  and  Second 
United-States;  Banks;  Svb-treasnry. 
Dexter,   Samuel,   succeeds  Wolcott 

as  secretary  of  the  treasury,  200. 
Dickerson's  report  on  the  tariff,  413. 
Disbursements.    Accoicnts. 
Distribution  Act,  438,  .548;  last  instal- 
ment to  the  States  not  paid,  550. 
Dix,  Senator,  on  warehousing,  481. 
Drawback .     Warehousing. 
Duane,  appointed   secretary  of   the 
treasury,  336;    refuses  to  remove 
deposits,  337. 
Duffie.    McDuffie. 
Dupont,  on  the  tariff,  385. 
Duties,   collection    of,  law  of   1799, 
486;   need  of  codifying  them,  486; 
objections  to  ad  valorem  principle, 
486,  489;    home   valuation  of    im- 
ports, 48S;  Guthrie  opposed  to  it, 
489;  inequality  of  collection  laws  at 
different  ports,  489;  consequences 


616 


INDEX. 


of  different  interpretation,  490-492; 
frauds  practised,  492;  interpreta- 
tion of  treaties,  4:>2,  494;  iiities, 
how  paid,  494;  shortening  credits, 
496;  remission  of  duties,  497,  498; 
interpretation  of  tariff  of  1833,  498; 
difficulty  in  interpreting  laws,  498; 
expense  of  collecting,  499;  pay- 
ment of  officers,  500;  abolition  of 
naval  office,  501.    Imports  ;  Tariff. 


E. 


Eppes,  chairman  of  ways  and  means 
committee,  255. 

Eustis,  secretary  of  war,  incompe- 
tency of,  248. 

Evans,  Senator,  on  the  tariff,  422. 

Eveleigh,  John,  appointed  comptrol- 
ler, 7. 

Ewing,  appointed  secretary  of  the 
treasury,  576.  Appropriations, 
1840-1860. 

Expenditures.    Appropriations. 

F. 

Fillmore,  chairman  of  ways  and 
means  committee,  438. 

Financial  reforms.  Appropriations; 
Accoxintinfj. 

Fiske,  on  renewing  charter  of  first 
United-States  bank,  147-150. 

Florida,  purchase  of,  209,  312;  frauds 
growing  out  of  war  in,  558. 

Foot,  Senator,  on  the  tariff,  405. 

Foreign  indebtedness  settled  by 
transfer  of  American  securities, 
456;  payment  of  foreign  Revolu- 
tionary officers,  46;  amount  of 
American  securities  held  abroad, 
311. 

Forward,  "Walter,  appointed  secre- 
tary of  the  treasury,  582.  Appro- 
priations, 1840-1860. 

Fuller,  on  the  tariff,  376. 


G. 


Gallatin,  his   early  political    career, 
177, 182, 203;  J.  Q.  Adams's  opinion 


of  his  honesty,  204;  condition  of 
treasury  when  he  entered  office, 
204;  his  worth  to  Jefferson,  205; 
abolition  of  internal  taxes,  207;  in- 
crease of  taxes  in  consequence  of 
Tripolitan  war,  207 ;  Jefferson's  rec- 
ommendations for  dry  docks,  208; 
opposes  the  creation  of  a  navy,  208; 
reduction  of  debt,  209;  had  no  faith 
in  embargo  measures,  212;  what 
financial  preparation  for  war  of  1812 
was  needed,  212-215;  recommends 
accumulating  a  war-fund,  219; 
loans  the  principal  war  resovirce, 
219;  plan  of  finance  at  outbreak  of 
war,  220;  need  of  increasing  the 
revenue,  220;  deficit  in  the  treas- 
ury, 213;  letter  to  committee  of 
Congress,  214;  hostility  to  him, 
215,  221;  goes  abroad  to  negotiate 
a  treaty,  215;  triumph  of  his  ene- 
mies, 216;  his  opinion  of  tbe  fund- 
ing system,  37-39;  on  paying  the 
debt  in  1802,  52-55;  on  exporting 
gold,  504.  Appropriation  Bills; 
Bank,  First  United-States;  Banks, 
Coinage;  Debt,  Payment  of;  De- 
posits ;  War  of  1812 ;  Imports ;  In- 
ternal Improvements ;  Internal  Reve- 
niie. 

Garland,  Hugh  A.,  on  State  banks, 
346. 

Gerry's  opposition  to  appointment  of 
secretary  of  the  treasury,  3. 

Girard's  subscription  to  loan,  227. 

Goodrich's  opinion  of  Congress  in 
delaying  to  pay  first  United-States 
bank,  137. 

Gouge,  on  the  sub-treasury,  356. 

Guthrie,  James,  on  reduction  of  du- 
ties, 460;  opposed  to  home  valua- 
tion, 489;  ability  of,  597.  Appro- 
priations, 1840-1860. 

H. 

Hale,  Natlian,  on  the  tariff,  384. 
Hayne,  on  the  tariff,  404. 
Hamilton  appointed  secretary  of  the 
treasury,  6;   difficulty  of  his  posi- 


INDEX. 


617 


tion,  6;  believed  that  creation  of 
debt  and  means  of  extinguishment 
should  go  together,  5<>;  Morris's 
opinion  of  his  ability.  22;  resigna- 
tion, 175;  his  achievements,  175- 
181;  his  measiires  opposed  as  cen- 
tralizing, 170;  causes  of  his  success, 
176;  investigation  of  his  conduct, 
178;  his  adoption  of  English  finan- 
cial system,  179;  his  influence  with 
his  party,  ISO.  Accounts ;  Appropri- 
ation Bills;  Bank,  First  United- 
States  ;  Coinage ;  Debt,  Fundinr/ 
of;  Debt,  Payment  of;  Deposits; 
Imports ;  Internal  Revenue. 
Hunt,  on  the  tariff,  400. 


I. 


Immigrants,  amount  of  specie 
brought  by  them,  517. 

Imports,  72;  resolution  introduced 
by  Madison,  74;  Hamilton  opposed 
to  permanent  bill,  74;  he  favored  a 
general  ad  valorem  duty,  74;  enact- 
ment of  first  law,  75;  increase  of 
rates,  76;  Gallatin's  criticism  on 
salt-duty,  77;  scope  of  early  laws, 
77;  English  Government  opposed 
to  American  manufactures,  78;  cir- 
cumstances which  favored  manu- 
facturing, 79;  application  to  Con- 
gress for  protection,  82;  progress 
made,  83;  action  of  Congress  on 
the  application  of  manufacturers, 
84;  war  favored  them,  85;  impedi- 
ments, 85;  machinery  purchased 
and  exported,  86;  different  kinds 
of  duties,  and  Hamilton's  objec- 
tions to  ad  ralorrm  system,  87; 
their  collection,  87;  fraud  of  im- 
porters, 91 ;  mitigation  of  fines,  91- 
93;  applications  for  remission,  9:5; 
drawbacks,  95-102;  tax  on  them, 
96;  drawback  on  refined  sugar,  99- 
101;  importations  checked  by  too 
high  duties,  101.  Manufactures: 
Tariff:  Duties,  Cnllnn'ion  nf. 

Independent  treasury.    Svh-trea.iyry. 

IngersoU's  opinion  of  Dallas,  299. 


Ingham,  appointed  secretary  of  the 
treasury,  5o8;  opposed  to  removal 
of  deposits,  3.36;  favored  home  val- 
uation of  imports,  488;  avei'aging 
credits  on  duties,  495;  on  coinage, 
507;  on  tariff,  410.  Appropriations, 
1828-1840;  Debt,  Payment  of. 

Internal  improvements,  Gallatin's 
plan  of,  69,  210. 

Internal  revenue,  opposition  to  the 
tax,  103;  especially  in  Pennsylva- 
nia, 107;  how  it  was  to  be  paid, 
104;  Hamilton's  report  thereon, 
104-107;  law  modified,  108;  Galla- 
tin's views  on  the  subject,  109-111; 
increase  of  tax.  111;  eft'ect  of,  111; 
carriages  taxed,  112;  auction  sales, 
refined  sugar,  and  snuff,  113;  in- 
come less  than  was  expected,  114; 
opposition  of  Federal  party  to  Xhe 
system,  115;  Wolcott  favored  direct 
taxation,  116;  his  report,  118;  ac- 
tion of  committee  of  ways  and 
means,  119,  121:  law  for  direct  tax 
passed,  121;  opposition  to  it,  121; 
number  and  expense  of  ofli(;ers 
employed  in  collecting  tax,  122- 
124;  argument  in  favor  of  collect- 
ing it,  124;  repeal  of  internal  taxes, 
124;  Randolph's  report  on,  125; 
their  repeal  a  party  necessity,  126, 
207;  need  of  the  system  in  1S12, 
227,  242;  not  at  first  contemplated 
by  Gallatin,  244;  their  necessity, 
246;  opposition  to  them,  249:  how 
they  might  have  been  avoided,  200; 
their  repeal  in  1817,  527.  War  nf 
1812;  Gallatin. 


Jackson,  President,  letter  ori  tariff 
during  presidential  canvass,  394. 
Bank,  Second  United-States ;  Appro- 
priations. 1828-1840. 

Jackson.  Joseph,  on  the  tariff,  427. 

Jefferson's  report  on  coinage,  159; 
hostility  to  first  United-States 
bank,  140,  141 :  gunboat  scheme, 
211;  dry  docks,  208;  suggests  issu- 


618 


INDEX. 


ing  paper  money  in  war  of  1812,  j 
237.     Gallatin. 

Johnson,  W.  C,  attempts  to  negoti- 
ate loan  in  Europe,  580;  report  on 
assumption  oi  debts  of  States,  580. 

Jones,  William,  succeeds  Gallatin  in 
the  treasury  department,  294;  re- 
port on  prize  goods,  294;  reports  on 
condition  of  the  treasury,  295;  why 
he  was  kept  there,  296;  manage- 
ment of  second  United-States 
bank,  318-327. 


K. 


Kent,  Senator,  on  effect  of  multiply- 
ing State  banks  during  the  war  of 
1812,  263. 

L. 

Lacock,  Senator,  opposition  to  Dal- 
las, 298. 

Land,  speculation  in,  348;  revenue 
from,  545. 

Livingston,  on  drawbacks,  483;  their 
object  to  increase  navigation,  483; 
drawback  law  of  181G,  484. 

Loans,  early,  43, 58,  73;  to  equip  navy, 
197,  199;  first  war-loan  of  1812,  221, 
223,  225;  issiie  of  treasury-notes, 
223;  sixteen-million  loan,  225-229; 
seA'en  and  a  half  million  loan,  229; 
twentj^-five  million  loan,  229-231; 
six-million  loan,  231;  three-million 
loan,  233;  final  loan  of  the  war,  2.39- 
241;  European  loan  in  1842,  580; 
loans  in  1861,  ()03,  604;  loans  made 
by  government  to  individuals,  532; 
loans  in  consequence  of  decline  in 
revenue  in  1820,  528.  Dank,  First 
United-States. 

Louisiana,  purchase  of,  66. 

Lowndes,  on  the  coinage,  505. 

M. 

Macon,  chairman    of   committee  of 

ways  and  means,  299. 
Madison,  on  the  tari.f ,  2i,  74;  lacked 


firmness,  248;  vetoes  first  charter 
of  second  United-States  bank,  280; 
signs  next  one,  281. 

Mallory,  on  the  tariff,  395,  396,  397. 

Manufactures  stimulated  by  war  of 
1812,  284,  291,  293;  previously  home 
competition  had  not  affected  for- 
eign production,  285;  effect  of  em- 
bargo laws,  285;  reluctance  to  en- 
gage in  new  enterprises,  286;  their 
increase,  287-289;  high  prices,  289; 
large  profits,  290;  evil  consequences 
of,  290.     Imports ;  Tariff. 

Mason,  attempt  to  remove  him  from 
presidency  of  branch  banlt  at  Ports- 
mouth, 335. 

McDuflfie,  on  the  tariff,  402,  414,  419; 
second    United-States    bank,   331. 

McKay,  on  the  tariff,  445. 

McLane,  secretary  of  the  treasury, 
on  paying  the  debt,  313,  315; 
United-States  bank,  336;  unsatis- 
fied appropriations,  539;  tonnage 
laws,  470.  Appropriations,  1828- 
1840. 

Meredith,  secretary  of  the  treasury, 
595.    Appropriations,  1840-1860. 

Mint.     Coinncje. 

Money,  kind  of,  first  received  by  the 
government,  21 ;  i^ressing  need  of, 
in  beginning,  73;  money  in  cir- 
culation in  war  of  1812,  2(U ;  effect 
of  paper  money  in  diminishing  the 
revenue,  531.  Treasury-Notes ;  Dal- 
las. 

Morris's  opinion  of  Hamilton,  22. 

N. 

Navy    department    established,    12; 

relation  to  other  departments,  12. 
Nicholson,  Gallatin's  letter  to,  221. 

P. 

Parish's  loan  to  the  government,  227. 

Patterson,  on  coinage,  506,  512;  for- 
eign coins,  171. 

Postal  department,  investigation  of, 
.543-545. 

Public  land.     Land. 


INDEX. 


619 


Q. 

Quincy's  report  on  the  circulation  of 
foreign  coins,  171. 


R. 


Raguet,  on  the  effect  of  contracting 
the  currency,  329. 

Randolph,  on  paying  the  debt,  52;  re- 
peal of  internal  revenue  laws,  125. 

Reid's  criticism  on  coinage  law  of 
18.34,  510. 

Revenue,  loss  from  collecting,  201, 
293;  frauds  in  collecting,  293.  Du- 
ties, Collection  of;  Imports ;  Apjiro- 
priations ;  Tariff. 

Rush,  on  paying  the  debt,  312;  ad- 
ministration of  the  treasury,  535- 
537. 

s. 

Sabine,  on  tonnage  laws,  470. 

Sanford,  on  coinage,  507. 

Scot's  proposition  to  coin  cents,  167. 

Sheldon,  chief  clerk  of  treasury,  and 
negotiates  loans,  239. 

Sinking-fund.    Debt,  Payment  of. 

Sinking-fund  commissioners,  appli- 
cation of  money  received  by  them, 
67;  no  Act  passed  abolishing  their 
office,  316.  Debt,  Fundin;/  <f,  and 
Payment  of. 

Smith,  Senator,  opposed  to  second 
United-States  bank,  151,  .3.32;  op- 
posed to  Gallatin,  247. 

Smith,  Robert,  secretary  of  the  navy, 
wrongly  uses  public  money,  213; 
favors  Jefferson's  gunboat  scheme, 
211;  squanders  public  money,  213. 
War  of  1812. 

Snyder,  Gov.,  vetoes  charters  of 
State  banks,  261. 

State  debts.    Debts  of  States. 

Specie  circular.     Banks. 

Specie  payments,  154,  155.  Banks; 
Appropriatio  n  s ,  1828- 1840. 

Spencer,  secretary  of  the  treasury, 
why  he  resigned,  583.  Appropria- 
tions, 1840-1860. 


Stevenson,  elected  speaker  of  the 
House  as  an  anti-protectionist,  395. 

Stevenson,  J.  S.,  on  the  tariff,  399. 

Sub-treasury  system,  establishment 
of,  351;  Congress  opposed  to  it,  352; 
"  exchequer  plan  "  for  keeping  de- 
posits, 353,  579;  established  in  1846, 
355;  law  defective,  355;  working  of 
the  system,  356-358.  Appropria- 
tions, 1828-1840  and  1840-1860. 

Sugar,  drawback  on  refined,  99-101. 

Sullivan,  Gov.,  on  balance  of  trade, 
81. 

Surplus  fund,  first  application  of,  to 
redeeming  funded  debt,  57;  appro- 
priations to  cease  after  two  years, 
186. 

T. 

Talbot's  report  on  coinage,  503, 

Taney's  removal  of  the  deposits,  337; 
his  report  thereon,  338-343.    Bank, 
Second  United-States. 

Tariff,  1816-1824,  imports  after  the 
close  of  the  war  in  1812,  359;  report 
of  Dallas  on,  .360-362;  bill  of  1816, 
362;  debate  on,  362;  nature  of,  365; 
"  minimum  principle,"  365,  3t58;  ef- 
fect of  the  law,  366;  auctions,  366; 
how  consumer  was  affected,  366; 
woollen-manufacturers,  367;  cotton 
bagging,  .368;  spirituous  liquors, 
3!)9  ;  iron-manufacturers,  .370-372; 
general  result,  372-.374. 

Tariff,  1824-1832,  disappointment  of 
manufacturers  in  former  tariff,  375; 
effects  of  competition,  375;  bill  of 
1824,  375;  debate,  376-.379;  effect  of 
law  on  cotton-manufacturei's,  .379- 
381 ;  New  England  engages  in  man- 
ufactures, 382  ;  paper-manufac- 
tures, 382;  iron,  382;  sail-duck,  .383; 
glass,  383;  wool  and  woollen  manu- 
facturers, .38.3-387,  392;  auctions, 
,387-390;  decline  of  American  im- 
porters, 389;  goods  entered  at  ficti- 
tious prices,  390;  advantage  of  for- 
eign importers,  391 ;  injurious  effect 
of  graduated  svstem  of  Icvvinn;  du- 


620 


INDEX. 


ties,  392;  Harrisbiirg  meeting  of 
manufacturers,  393;  Jackson's  let- 
ter on  tariff  in  iiresidential  canvass, 
394;  composition  of  committee  on 
manufactures  in  1.S29,  395;  tlieir 
mode  of  proceeding,  395;  debate 
on  the  bill,  397-40tJ;  vote  on  the 
bill,  402;  effect  of  the  law  on  prices, 
406-410;  Clay's  resolution  to  re- 
duce the  tariff,  410-412. 

Tariff,  1832-1842,  report  on  Clay's 
resolution,  413;  McDuffie's  report, 
414-41G;  minority  report,  416-418; 
Adams's  report,  418;  McDuffie's 
speech,  419-421;  Applet ou's  replj', 
421;  debate  continued,  421;  bill 
passed,  422;  action  of  South  Caro- 
lina, 422;  Jackson  recommends  re- 
ducing the  duties,  423;  Verplanck's 
bill,  423;  Clay's  bill,  424;  criticism 
of  bill,  425-427 ;  effect  on  iron-manu- 
factures, 427;  glass,  427;  cotton,  428; 
woollen-manufactures,  429,  431  ; 
sugar  and  sugar-retining,  431-433. 

Tariff,  1842-1846,  decline  in  manu- 
facturing, 434;  Forward's  report  on 
tariff,  435;  report  of  committee  on, 
436;  discussion  of,  437;  rejection  of 
bill,  438;  new  tariff- bill,  439;  effect 
of,  on  imports,  440-442;  need  of 
more  revenue,  442;  Bibb,  on  the 
tariff,  443,  445;  effect  of  frequent 
changes  of,  444;  increase  of  im- 
ports, 445;  reduction  of  prices,  445; 
effect  of  law  on  manufactures,  446- 
448. 

Tariff,  1846-1860,  Walker's  report,  449- 
452;  enactment  of  new  law,  452; 
nature  of  it,  452;  working  of  it,  453: 
effect  of  Mexican  war,  454;  "  Amer- 
ican Review"  on  the  tariff',  454; 
growth  of  fraud,  454;  hostility  of 
Democratic  party  to  tariff,  455;  ef- 
fect of  Irish  famine,  455;  California 
gold  discoveries,  455;  transfer  of 
American  securities  to  pay  for- 
eign deV)ts.  450:  effect  of  outflow  of 
gold,  456.458;  suffering  of  woollen- 
manufacturers,  456;  cotton-manu- 
facturers, 457;  success  of  law  as  a 


reveniie  measi;re,  459;  reduction 
of  duties,  460;  general  result  of  the 
action  of  the  government,  461-466. 
Imports;  Duties,  Collection  of;  Ware- 
housinc/  and  JJrmobacks. 

Taxes,  direct,  preferable  to  imports, 
115.    Internal  Revenue. 

Tonnage-duties,  object  of  them,  467; 
bebate  of  bill,  75;  Acts  of  1789 
and  1790,  467;  early  prosperity  of 
American  commerce,  468;  treaty 
of  1815  with  Great  Britain,  469, 
472;  decline  of  trade  with  the 
West  Indies,  470;  MacLane's  ar- 
rangement, 470;  repeal  of  colonial 
navigation-laws  by  Great  Britain, 
472;  treaties  with  other  nations, 
473;  effect  of  policy  adopted  by 
our  government,  473,  475;  regula- 
tions with  Spain,  474-477. 

Treasury  dei>artment,  organization 
of,  3;  secretary  required  to  digest 
plans,  4;  to  report  in  writing,  5; 
officers  of,  5;  could  not  engage  in 
business,  6;  duties  of  secretary,  5; 
how  clerks  were  apiiointed,  6;  ap- 
pointment of  Hamilton,  6;  relation 
between  treasury  and  war  depart- 
ments, 7-12;  fire  in  former,  201; 
completion  of  organization,  201. 

Treasury-notes,  first  issue  of,  223; 
amount  in  circulation  in  1814,234; 
further  issues,  236,  238;  took  the 
l">lace  of  bank-notes,  276;  attemjit 
to  recover  the  amount  of  deprecia- 
tion from  the  government,  283; 
funding  of  them,  ."04.  Appropria- 
tions, 1828-1S40,  and  1840-1860 ;  War 
of  1812. 

Trust-funds,  investment  of,  596. 

V. 

Van  Buren's  administration,  351. 
Verplanck's  tariff  bill,  423. 

w. 

Walker,  R.  J.,  on  tariff  of  18.33,  426; 
appointed  secretary  of  the  treasury, 
449.    Appropriations,  1840-1860. 


INDEX. 


621 


"War  department,  establishment  of, 
7;  mode   of    conducting  business, 
7-12. 
Wax  of  1812,  danger  of,  212-214;  dis- 
astrous   events   of    tlie   first   year, 
224;  no  economy  in  expenditures, 
224;    tliey  exceed    tlie    estimates, 
229;  low  state  of  the  finances,  232; 
difWculty    in    raising    funds,  234; 
failure  of  original  plan  of  finance, 
235;  committee  of  ways  and  means 
favor  increased  taxation,  23(j;  Gal- 
latin's views  on   the  subject,  242, 
244;  neglect  of  Congi-ess  to  heed 
them,  244;  he  reiterates  them,  244; 
report  of  committee,  247;  effect  of 
report,  247;  opposition  to  Gallatin 
maintained,  248-250;  he  did  not  ask 
for    enough    taxes,  250;    Congress 
obliged  to  levy  them,  250;  Galla- 
tin's system  same  as  that  he  for- 
merly   condemned,    251  ;    inaction 
of  Congress,  252;  special  session, 
253;  need  of  more  money,  255;  rec- 
ommendation of    committee,  255- 
257;    taxes  increased    and    multi- 
plied, 257-200;  Dallas's  picture  of 
condition  of  the  treasury  in  1814, 
268;  condition  at  later  period,  271; 
why  Dallas  did  not  compel  debtors 
to  pay  in  coin,  277.    Banks. 


"Warehousing  and  drawbacks,  law  of 
1799,    478;     shortening    of    credit 
period,   480,   495-497;    law   of  1842, 
480_4,S4;  Dix,  on  warehousing,  481; 
effect  of  law  on  imports,  481;  dis- 
satisfaction with  the  law,  482. 
Warrants.     Accounts. 
Webster,  on  the  tariff,  378,  379. 
White's  report  on  coinage,  506. 
Whitman's  report  on  coinage,  506. 
Willing,     president     of     the     first 

United-States  bank,  129. 
Witherspoon,  on  funding  the  debt, 

24. 
Wolcott,  appointed  auditor,  7;  after- 
Vfard    secretary    of    the    treasury, 
180;     adopts     Hamilton's     policy, 
180;  resigns,  200;  investigation  of 
treasury    department,    200;    views 
on  paying  the  debt,  63.    Internal 
Revenue ;  Appropriation  Bills ;  Bank, 
First   United-States;   Loans;  Debt, 
Payment  of. 
Woodbury,  secretary  of  the  treasury, 
on  final  payment  of  the  debt,  316. 
Appropriations,  1S28-1S40,  and  1840- 
1860. 
Wright,      Senator,     of      Maryland, 

against  increasing  taxes,  249. 
Wright,  Silas,  on  the  tariff,  395,  396. 


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